Maldives seeks 200 million loan from reserves

After the South Asian country Sri Lanka, another neighboring country Maldives has applied for a loan from the reserves of Bangladesh Bank. They want to borrow 200 million from Bangladesh against their own currency. The central bank is reviewing the Maldives' application.

Bangladesh Bank spokesperson Sirajul Islam confirmed the matter.

Sirajul Islam said it is not finalized how much loan would be given to the Maldives. They first applied for a 50 million loan but then asked for 200 million US dollars again. Bangladesh Bank is reviewing their application.

Earlier, last year, for the first time, Bangladesh Bank provided loan assistance in dollars to Sri Lanka from the reserve. When the country's tourism industry collapsed due to the Corona epidemic, the reserves were strained. At one point, the island's foreign exchange reserves dropped to 500 million. The foreign exchange crisis became so severe that in March 2020, the Sri Lankan government imposed an indefinite ban on imports.

In this situation, to attend the ceremony of Mujib Chirantan the Prime Minister of Sri Lanka Mahinda Rajapaksa came to Dhaka on March 19 last year. At that time, Mahinda Rajapaksa had a formal meeting with Prime Minister Sheikh Hasina at her office. In the wake of that meeting, the Governor of the Central Bank of Sri Lanka applied to Bangladesh Bank for a loan in dollars. In the end, a conditional loan of US 200 million was given to the economically devastated island nation due to the Corona epidemic.

According to the concerned sources, the decision to give a loan from the reserve of Bangladesh Bank was approved by the board of directors of this organization but in this case, the decision is taken at the top level of the government. Before giving the loan to Sri Lanka, the head of state of the country had a meeting with the head of government of Bangladesh. At present Bangladesh has excellent relations with another island nation Maldives. Recently, Prime Minister Sheikh Hasina visited the Maldives at the invitation of the government. As a result, the government is looking positively at the Maldives' application for lending from the reserve.

Conditions under which the Maldives can get a loan

According to sources in the Bangladesh Bank, since the Maldives wants to borrow the same amount from Sri Lanka, the conditions under which the loan was given to Sri Lanka may be similar to that of the Maldives. In this case, the transaction will be done in the currency swap method.

It is learned that according to the international rules of SWAP, a country can avail loan or investment facility in case of a foreign exchange crisis. This short-term loan is first given for three months. There is an opportunity to extend its term later with the consent of both parties. The interest rate is usually set by adding 2% to the London Interbank Offer Rate (Liber). However, this will be resolved through discussions between the two countries.

Sources said that after approving Sri Lanka's loan application, Bangladesh first sent the number of dollars mentioned in the agreement to a specific account of the Central Bank of Sri Lanka. The island nation has deposited the same amount of money in the Nostro account in the name of Bangladesh as security. Sri Lanka will then gradually repay their debts by depositing US dollars in that account. In case of non-payment, the value of goods imported from Sri Lanka worth 50-55 million dollars per annum will be paid with the Sri Lankan currency deposited in that account.

Bangladesh Bank officials said that if the Maldives is given a loan in dollars from the reserves, it will have to open a Nostro account in the name of Bangladesh in the country's central bank and deposit the same amount of local currency in it.

As of December 29, the latest reserves of Bangladesh Bank stood at 46 billion. Earlier in August, the central bank's reserves reached a record high of 48 billion. At that time, the leap in the reserve was due to a loan waiver from the IMF. But at the end of the year, it dropped to 2 billion and now stands at 46 billion. Central bank officials say the reserves could cover 4 billion a month in imports for more than 11 months.

By international standards, a country is considered safe if it has foreign reserves equal to at least three months' worth of import costs. As such, the concerned people think that the foreign exchange reserves of Bangladesh Bank are in a safe and strong position. And that is why neighboring countries like Sri Lanka and Maldives are applying for dollar loans from Bangladesh.