India extends $900 mn aid to Sri Lanka

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What is the news?

India has confirmed a $400 million currency swap with Sri Lanka while deferring another $500 million due for settlement to the Asian Clearing Union(ACU).

What is Currency Swap?

Click Here to read about it

Why has India signed the Currency Swap agreement with Sri Lanka?

The swap agreement was signed to help Sri Lanka overcome an unprecedented economic crisis.

Note: Currently, Sri Lanka is currently facing a severe dollar crunch that economists say might lead to a default on external debt and create a food shortage in the imports-reliant island nation.

Moreover, this agreement comes a week after the two countries signed a long-pending agreement on jointly developing the strategically located Trincomalee oil tank farm along the north-eastern coast of the island. 

What is Asian Clearing Union (ACU)?

Asian Clearing Union(ACU) was established in 1974 at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP).

Objective: To facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries.

Members: The Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU.

Headquarters: Tehran, Iran.

Source: This post is based on the article “India extends $900 mn aid to Sri Lankapublished in The Hindu on 13th January 2022.

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