With foreign exchange reserves at an all-time low, India allowed Sri Lanka to settle its $1 bn credit facility in rupee terms. The Reserve Bank of India (RBI) on May 19 said the $1 billion credit facility backed by the government of India that has been provided to Sri Lanka to buy essential goods could be settled in the Indian rupee, outside of the arrangement of the Asian Clearing Union (ACU) arrangement.
The government, in March, stated it will provide SL with a $1 billion term loan facility to buy items like food, medicines, and other essential items. It’s also pertinent to note, that Sri Lanka recently announced that the country only has petrol which is only enough to fulfill its requirement for one day.
This is in view of “difficulties experienced by exporters in receipt of export proceeds from Sri Lanka,” the central bank said in a statement.
What is ACU?
The ACU is a payment arrangement in which participants settle payments for conducting transactions between them among the central banks on a net multilateral basis. The central banks and monetary authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka are currently members of the ACU, according to an earlier notification by the RBI.
ACU arrangement liberalized for Sri Lanka
According to the ACU arrangement the payments for the transactions between the nations concerned can only be received in ACU Dollar, ACU Euro, or ACU Japanese Yen account in India of a bank of the member country. However India’s southern neighbour Sri Lanka has been pushed into a deep economic crisis and struggling to procure essential items for its 22 million population because of constantly dwindling foreign exchange reserves and crippling debt. This spiraled the country into its worst socio-political crisis leading to the resignation of Prime Minister Mahinda Rajapaksa.
India’s aid to Sri Lanka
Apart from directly providing aid of essential items to Sri Lanka, India has also announced a $400 million credit swap to pump in some reserves; additionally, a $500 million credit line to buy fuel requirements was also signed between both nations in February. Earlier on March 17, both nations signed a $1 billion credit line for essential items. India has already put up a total of $2.4 in assistance to Sri Lanka. (Republic World)