January 23, 2019
The Union Cabinet, led by Prime Minister Narendra Modi has approved an amendment to the ‘Framework on Currency Swap Arrangement for SAARC Member Countries’. SAARC, or the South Asian Association for Regional Cooperation include Afghanistan, Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan and Sri Lanka. The move will employ a ‘standby swap’ worth US$400 million operated within the overall facility of US$2 billion, along with a build-in flexibility with respect to modalities of its operation, such as period of swap, roll over, among others. The amendment been done with due consideration of conditions of requesting SAARC member countries as well as domestic requirements of India.
The amendment was proposed after it was found that owing to heightened financial risk and volatility in global economy, short term swap requirements of SAARC countries could be higher than the agreed lines. The incorporation of ‘Standby Swap’ within the approved SAARC Swap Framework would provide necessary flexibility to the arrangement and would enable India to provide a prompt response to the current request from SAARC member countries for availing the swap amount exceeding the present limit prescribed under the SAARC Swap Framework. The amendment to the swap deal comes amid improving ties between India and the SAARC that has led to increased trade and investments.
Owing to growing interactions, in 2018, India hosted a summit of agricultural experts from the region as well as a finance ministers conference. India had approved the SAARC Currency Swap Framework in 2012 in order to provide a line of funding for short term foreign exchange requirements or to meet balance of payments crises until longer term arrangements are made or the issue is resolved in the short-term itself. Under the Facility, RBI offers swaps of varying sizes in USD, Euro or INR to each SAARC member country depending on their two months import requirement and not exceeding US$2 billion in total. The swap amount for each country has been defined in a range of US$100-400 million.