Sri Lanka’s foreign reserves have suffered another blow following a decision by the Bangladesh Bank last week to halt transactions with Sri Lanka through the Asian Clearing Union (ACU) system.
According to Bangladesh Media, the Bangladesh Bank has instructed banks to refrain from transactions with Sri Lanka through the ACU system.
As per the new directive, If any Bangladeshi bank wants to settle a transaction with a Sri Lankan commercial bank, they can do it by ignoring the ACU system.
The Sunday Times reported that Sri Lankan bankers have revealed that the decision may have been prompted by Sri Lanka’s low forex reserves and Sri Lanka’s Central Bank seeking more time to make payments to Bangladeshi customers, via their banks.
Delays by Sri Lanka’s Central Bank to help local banks settle outstanding dues to Bangladesh banks (often for goods purchased by Sri Lanka) during the usual three-month grace period for payments may have played a key part in the decision.
The ACU is a platform where three months grace or credit is given to make a settlement and Sri Lanka may have required more time to settle its dues.
Thereby, henceforth if Sri Lankan banks need to settle a payment in Bangladesh, it is forced to make a cash payment, through dollars from the Central Bank, without any recourse to credit, they said.
Local bankers have pointed out that this move will push the Central Bank to make cash immediately available from its dwindling forex reserves to make payments to Bangladeshi customers and this would further erode the reserves.
The Bangladesh Bank’s decision comes at a time when Sri Lanka’s current foreign reserves stand at US$ 1.717 billion which includes an untradeable $1 billion loan from China.
