Dr. Indrajit Coomaraswamy. Pic by Samantha Perera

• Exposure to short-term swaps to be reduced by another US $700-800mn in coming weeks 
• Aims to bring down current account deficit in trade to 2.1% of GDP this year

By Nishel Fernando

Sri Lanka will end 2018 with gross official reserves of US $9.5 billion while further cutting its exposure to short-term swaps by another US $700-800 million, Central Bank Governor Dr. Indrajit Coomaraswamy said.

Delivering the Certified Management Accountants of Sri Lanka (CMA) Founders Day Oration last Friday in Colombo, Coomaraswamy said Sri Lanka’s forex reserves stood at US $8.7  billion as of last week and are expected to improve by a further US $2 billion over the next few weeks.

He said inflows from recently finalised eight-year China Development Bank’s US$ 1 billion syndicated loan, recently approved US$ 246.7 million IMF’s fifth tranche Extended Fund Facility (EFF) and pending lease rental of US $585 million for the Hambanthota port would account for this US $ 2 billion.

He pointed out that the country’s forex reserves have been gradually improving both in volume and in quality. According to Coomaraswamy, Sri Lanka’s forex reserves stood at approximately US $6 billion by the end of 2016 and were improved to US $7 billion by the end of last year. 

Meanwhile, short-term swap arrangements with commercial banks were reduced by nearly US $1 billion from US $2.5 billion to US $1.5 billion. 

The Governor noted that the government is setting up buffers to face external net liabilities amounting to US $3.9 billion per year over the next 4-5 years.

He blamed that the current bunching up of debts occurred due to aggressive borrowing of the former government from international market on commercial terms since 2007 without a long-term policy to enhance exports.

As a result, he pointed out that while inheriting a large debt stock, Sri Lanka’s exports, which stood at 33 percent of GDP in 2000, declined to 12.4 percent of GDP in 2014.

Meanwhile, Coomaraswamy was confident that current account deficit in trade would be brought down to a sustainable level of 2.1 percent of GDP this year. 

 arget due to adverse weather, which impacted the agriculture sector, high oil prices and a sharp increase in gold imports. Sri Lanka’s current account deficit reached 2.6 percent of GDP last year.

Responding to criticism on IMF’s Sri Lanka’s Extended Fund Facility (EFF), he asserted that the IMF programme helped Sri Lanka to raise US $ 2.5 billion successfully selling sovereign bonds in international markets recently. “Otherwise it would have been impossible,” he stressed. 

The Governor also noted that Sri Lanka and Mongolia are the only countries in the Asia Pacific region to receive IMF assistance while he quipped, “IMF only comes, when we mess things up.”

Sri Lanka’s economic growth hit a 16-year low of 3.1 percent in 2017 16-year mainly due to poor performance of the adverse weather-hit agriculture sector. 
“Much needs to be done in terms of growth framework, it might be moving more slowly than it should be, however, we are moving on the right direction,”

Coomaraswamy said

He noted that the rural development programmes such as “Gamperalaiya” where government is set to invest around Rs.80 billion over the next two years in developing rural infrastructure,would improve the growth outlook for the country. 

He also emphasised that the proposed FTA with China and the proposed Economic and Technology Co-operation Agreement (ETCA) would be a key differentiator in attracting FDI to Sri Lanka for export oriented industries. 

However, he noted that Sri Lanka needs to move fast to get things done.