COLOMBO: The International Finance Corporation (IFC), the World Bank's investment subsidiary, said it will provide Sri Lanka with a USD 400 million cross-currency swap facility to help fund essential imports.

The IFC announced on February 27 that three private banks will receive the facility to fund around 30% of imports, including food, medicine, and fertiliser.

The fund would give Sri Lanka a much-needed foreign exchange buffer as it battles its worst financial crisis in over seven decades, which was partly brought on by a severe dollar shortage.

According to World Bank estimates, the economy of the island nation is projected to have shrunk by 9.2% in 2022 and is projected to shrank by a further 4.2% in 2023.

"We expect this financing to stregnthen confidence in the investor community, attract fresh capital inflows to support the Sri Lankan economy," said Joon Young Park, IFC's Portfolio Manager, Financial Institutions Group for South Asia.

 IFC is also developing new strategies to support client banks in the future with more long-term finance and consulting services, the statement added.

Last September, Sri Lanka and the International Monetary Fund (IMF) signed a preliminary deal for a USD 2.9 billion bailout; however, before the funds can be granted, Sri Lanka must put its debt on a sustainable repayment track.
The International Finance Corporation (IFC) is offering a cross-currency exchange facility to three of Sri Lanka's top national banks that handle more than 30% of the island nation's remittances and exports in order to assist Sri Lanka amid a continuing economic crisis. It will help the nation's urgent need to stabilise the economy by providing crucial funding support to the private sector.

The economic situation in Sri Lanka is at its worst in decades. The production of the nation is projected to have decreased by 9.2 percent in 2022 and by an additional 4.2 percent in 2023.

IFC's facility will give Commercial Bank of Ceylon (CBC), Nations Trust Bank (NTB), and Sampath Bank $400 million over the course of a year in order to assist the nation by facilitating imports of necessities including food, medicine, and fertiliser, the majority of which are handled in US dollars (USD). The facility will help banks better meet their clients' export finance needs while enabling them to make USD-denominated debt repayments.

"During the course of our nearly 20-year partnership, IFC has worked closely with us to expand our activities, including new trade, climate finance, and small and medium enterprise prospects. IFC was also crucial to the creation of our entire women's banking portfolio. Sanath Manatunge, Managing Director/Chief Executive Officer of Commercial Bank of Ceylon, stated that this new capability would enable us to use our foreign currencies more effectively while reducing our exposure to foreign currencies.

With the reinstatement of trade credit lines with IFC partner banks--under the Global Trade Finance Program--in January 2023, which have been cautiously managing their risks in a difficult operating environment, comes the establishment of this new swap facility. With the support of this facility, CBC and Sampath Bank will be able to give its clients better access to medium- and long-term financing, assisting local firms in maintaining operations.
In addition, the deal will revive the long-standing partnership with IFC, which spanned a variety of business sectors like commerce, foreign exchange, and financial services. 

This facility complements the fifty years of IFC operations in Sri Lanka. In Sri Lanka during the COVID pandemic, IFC played a significant countercyclical role, investing over $830 million and providing urgently needed long-term capital and trade financing to support the survival of enterprises and the preservation of jobs.

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