• Says current abnormalities in local forex market will ease off shortly 
• Expects US $ 500mn via syndicated loan and US $ 200mn from China Development Bank
• Says CB negotiating US $ 1bn special swap facility with RBI
• Assures govt. hasn’t taken a decision to restrict import of electrical appliances 
• Says govt. has no plans to approach IMF for support 

By Nishel Fernando 
The government expects the current abnormalities in the local foreign exchange market to ease off within the next few months, amid the new inflows expected to the tune of US $ 2.5 billion into the country’s foreign exchange reserves. 

“In the short term, there would be certain gaps that may arise. However, that’s temporary. We have to ensure that we have sufficient dollars in hand to meet our commitments.  There will be few sacrifices that have to be made.

Within the next two to three months, there will be a change in the direction that we are moving because there will be dollar inflows combined with foreign exchange savings from import reductions,” Money and Capital Market and State Enterprise Reforms State Minister Ajith Nivard Cabraal told reporters in Colombo, yesterday. 

He shared these remarks responding to a media query on the dollar shortage in the domestic foreign exchange market at the official exchange rate.  

Among the fresh inflows, the government is expecting to raise US $ 500 million via a syndicated loan and US $ 200 million from the China Development Bank (CDB). 

In addition, Cabraal noted that US $ 200 million from a swap facility with the Bangladesh Bank, US $ 400 million from a swap facility with the Reserve Bank of India (RBI) and receipt of around US $ 780 million under the IMF SDR allocation, are expected in the coming months. 

In terms of non-debt-creating inflows, the Central Bank (CB) is expecting to purchase US $ 500 million from the domestic market over the next six months. The CB has already purchased US $ 130 million from the domestic market in the first six months of the year. 

The CB is also negotiating a special swap facility of US $ 1 billion with the RBI, Cabraal said.

With the current import restriction in place, the CB expects to reduce US $ 700 million in import expenditure this year, according to Cabraal. 

Commenting on imposing further restrictions on imports, including electronic items, Cabraal remarked that the government has not made a decision on this regard, although, the CB submitted a proposal backing additional import restrictions. 

“We don’t expect to reach such a decision,” he noted.

However, he outlined the critical role of importers and exporters in maintaining the stability of the rupee and to avoid further restrictions through self-discipline.  

“Importers must only import what’s needed in the short term and not for the full year. If they take that view, we will have an easier passage. Exporters must realise they shouldn’t walk around with dollars to get a few more rupees,” he elaborated. 

Sri Lanka’s foreign exchange reserves are expected to fall to around US $ 3 billion at the end of this month, after settling the US $ 1 billion maturing ISB on the 27th of this month. However, Cabraal emphasised that US $ 300 million of the US $ 1 billion ISB would come back to the country as 30 percent of the ISB is held by Sri Lankan banks. Hence, he noted that the net drainage of foreign exchange reserve would be limited to US $ 700 million.

Moving ahead, Cabraal said the government has no plan to approach the IMF for support to address the current issues in the external account and assures the government’s commitment to maintain the current low interest rate regime and tax structure, with an anticipated recovery of the economy next year.