Sri Lanka gets more time to pay back Bangladesh loan

Bangladesh has extended the repayment period of the loan it had given to Sri Lanka by six more months as the Island nation continues to struggle to fix its debt crisis, officials say.  

Earlier, the central bank of Sri Lanka had sought time from Bangladesh to make the first instalment of the $200 million credit by March this year, hoping that it would be able to restructure its debt by then. However, the restructuring was not done.

"Now, Sri Lanka is seeking six more months and said it would make its first instalment by August this year and another instalment by September," said Bangladesh Bank Governor Abdur Rouf Talukder.

He made the remarks while speaking to a group of journalists after a meeting with P Nandalal Weerasinghe, governor of the central bank of Sri Lanka, on the sidelines of the 2023 Spring Meetings of the World Bank Group and the International Monetary Fund (IMF) in Washington on Friday.

The Sri Lankan governor confirmed that it would need no further extension, Talukder said.

He added: "When a loan repayment period is extended, it is not free of cost. It adds more interest."

The island nation, which is facing its worst economic crisis in history, borrowed the fund in May 2021.

Colombo could not start repaying the loan and announced its external debt default in April of 2022 amid a deepening crisis. The loan repayment period has been extended thrice.

As per the agreement with Sri Lanka, Bangladesh was supposed to receive an interest payment of Libor plus 2 per cent if the amount was returned in three months.

The Libor, the acronym for London Inter-Bank Offered Rate, is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. The three-month Libor averaged around 0.53 per cent in 2021.

Libor is being phased out in large part because of the role it played in worsening the 2008 financial crisis, as well as scandals involving Libor manipulation among the rate-setting banks. It will cease to exist by June 30 and will be replaced by the Secured Overnight Financing Rate (SOFR).

Last month, Sri Lanka secured a $2.9 billion programme from the IMF to tackle its huge debt burden.

The country owes $7.1 billion to bilateral creditors, with $3 billion owed to China, followed by $2.4 billion to the Paris Club, and $1.6 billion to India, reports Reuters on Friday.

The government also needs to renegotiate more than $12 billion of debt in eurobonds with overseas private creditors, and $2.7 billion on other commercial loans.

 - The Daily Star