Mujibur Rahman on Covid-19 foreign financing: embraces common misunderstanding

Fact Check

In his statement quoted in Lankadeepa on 28 April 2020, former MP Mujibur Rahman claims that that the government has “received around LKR 200 billion” from foreign entities to address the coronavirus pandemic. While the newspaper article framed Rahman’s statement as though he were referring to the provision of grants, FactCheck interpreted him solely on the basis of his quoted statement. Consequently, FactCheck interpreted Rahman to be referring to the commitment of expendable financing—which is not limited to grants.

To understand how the former MP arrived at his figure, FactCheck reviewed press reports of financing arrangements Sri Lanka has entered into with foreign entities. Exhibit 1 shows that LKR 203.4 billion was reported in terms of such arrangements as of 28 April 2020. (Note: This figure is based reports of amounts committed.  Information on the amount disbursed was not publicly available at the time of writing. The figure also excludes in-kind donations of medical equipment or other relief.)

However, not all of these arrangements can be classified as expendable financing in the manner referred to by the MP. Three types of financial arrangements pertaining to Covid-19 related assistance have been made public:

1. Grants:

This mode of financing is expendable for Covid-19 control activities and does not have to be repaid. Grants received amounted to LKR 5.4 billion.

2. Loans:

This mode also constitutes expendable financing but needs to be repaid in the future. Loans (including a line of credit from the World Bank) amounted to LKR 121.0 billion.

3. Currency swap:

This mode does not constitute expendable financing and makes no change to the Sri Lankan government’s cash position or its ability to spend money for the control of Covid-19. It is merely an equivalent exchange of rupees for dollars.

Sri Lanka entered into a currency swap agreement of USD 400 million (equivalent to LKR 77 billion) with the Reserve Bank of India to boost reserves and meet short-term international liquidity requirements in the wake of the Covid-19 pandemic. The manner in which such swaps are reported in the press generally implies that the dollars received can be used to finance domestic activities. This is a common misunderstanding. However, the currency received in such a swap flows into the Central Bank Reserves and is not available for the government to spend. A currency swap can be unwound (returned) at the end of the agreed period.

Consequently, only LKR 126.4 billion (or 62.1%) of the financing commitments made by foreign entities is expendable on activities to control Covid-19. Hence, while the former MP is right regarding the amount, he embraces a common misunderstanding in considering the currency received from India in a swap, as expendable financing.

Therefore, we classify his statement as PARTLY TRUE.

*FactCheck’s verdict is based on the most recent information that is  publicly accessible. As with every fact check, if new information  becomes available, FactCheck will revisit the assessment.

Exhibit 1: Confirmed financing arrangements between Sri Lanka and foreign entities as of 28 April 2020