ECONOMYNEXT – Sri Lanka owes India 1.4 billion US dollars in Asian Clearing Union payments up to now, and the neighbor has agreed to defer payments till January next year as part of ‘bridging finance’ Finance Minister Ali Sabry said.

India first deferred a 515 million US dollar payment in the first quarter of 2022 as the central bank printed money over two years, boosted imports and broke the credibility of a peg.

“Already we owe about 1.4 billion US dollars,” Sabry told reporters in an online briefing on April 22.

“There is an official assurance that they can be deferred every two months, up to January.”

The ACU is a clearing union set up in the 1970s among the worst money printing soft-pegged central banks Asia and West Asia which had foreign exchange trouble after the break-up of the Bretton Woods.

India is also giving credit lines for Sri Lanka to import oil and essential goods. An attempt to float the rupee (suspend convertibility) and restore monetary stability in March failed due to a surrender rule and low interest rates.

Analysts had warned that a failed float would have serious consequences.

Sri Lanka’s central bank is in its worst crisis in history after printing 2.1 trillion rupees over two years or about double the revenues lost from a tax cut and giving jobs to 50,000 unemployed graduates as an election promise and ending market pricing of oil. (Colombo/April/2022)