The bilateral currency swap agreement between the Central Bank of Sri Lanka (CBSL) and the People’s Bank of China (PBoC) has been renewed for another three years under the terms and conditions of the original 2021 agreement. This extension secures RMB 10 billion (approximately USD 1.4 billion) in the CBSL’s reserves, symbolizing continued financial cooperation between the two nations.
The agreement was formalized by CBSL Governor Dr. P. Nandalal Weerasinghe and PBoC Governor Mr. Pan Gongsheng. Despite its inclusion in CBSL’s reserves, the loan has been termed as largely symbolic, as the Sri Lankan government faces strict limitations on utilizing the funds.
The original agreement, signed during a period of economic distress in 2021, included stringent conditions, restricting Sri Lanka’s ability to leverage the swap loan for its financial needs. Since then, Sri Lanka has repeatedly requested permission to utilize the funds, but China has not agreed to ease these restrictions.
The currency swap agreement provides CBSL with a financial safety net for reserve accounting purposes but has limited practical utility. Critics argue that the loan serves more as a “showpiece” in the reserves rather than a functional resource to address Sri Lanka’s pressing economic challenges.
The renewal of the agreement comes as Sri Lanka navigates a challenging economic recovery, emphasizing the need for flexible financial resources. The continuation of the swap facility highlights the diplomatic ties between the two countries, but the practical benefits remain a matter of concern for Sri Lanka’s policymakers.
