• To be supported by proposed increase in IMF’s SDR combined with improvements in external account
• Through SDR increase, SL expects 10-20% or US$ 800mn boost to foreign exchange reserves
• Year-to-date, rupee has depreciated by 6.8% against US$
• Foreign reserves, which declined to US$ 4.1bn by end-March, expected to have recovered with Chinese loan

By Nishel Fernando
State Minister of Money & Capital Markets and State Enterprise Reforms, Ajith Nivard Cabraal expects Sri Lankan rupee to stabilise at Rs.175-Rs.180 range against US dollar by end of this year, supported by anticipated boost from proposed increase in International Monetary Fund’s (IMF) Special Drawing Rights (SDR) combined with expected improvements in the country’s external account.

“I think the rupee would settle around Rs.175-Rs.180 range against US$ by year-end. Going forward, I would expect the rupee to appreciate further next year,” the State Minister said in an interview with Mirror Business last Friday.

The rupee appreciated against US dollar last Friday with buying and selling rate of the US dollar recovering to Rs. 201.28 and Rs.195.72. Year-to-date, the rupee has depreciated by 6.8 percent against the US dollar, according to Central Bank (CB) data.

If the proposed US$ 650 billion additional allocation in SDRs is to be passed by 85 percent of IMF membership vote, Sri Lanka is expected to witness around 10-20 percent or US$ 800 million boost to its foreign exchange reserves. 

“This would mean that our reserves will go up, and it would mean that there is additional foreign exchange liquidity in our country. If that infusion is to come in, it would be very helpful for us to take back the rupee to a comfortable level. That is something I am very keen to ensure would happen,” 
Cabraal highlighted. 

Sri Lanka’s foreign reserves fell to US$ 4.1 billion by end of March. However, it’s expected to bounce back this month, after securing the US$ 1.5 billion swap facility and another US$ 500 million loan from China.

However, Cabraal lamented IMF’s slow response in supporting developing countries with their efforts to address the challenges posed by the COVID-19 pandemic, when compared to its quick response during the 2008-2009 global financial crisis. 

“IMF should have responded to the global pandemic much quicker. In my view, they are one year late. Having said that, in my view, it’s the right step to take, even after one year. Sri Lanka received a similar allocation during 2008-2009 global financial crisis to the tune of US$ 500 million.  At that time, the then IMF Managing Director, Dominique Strauss-Kahn responded quite fast with the SDR allocations. Even though, it has taken little more time during this time around, I’m happy that we have reached this point now. I hope that the IMF Board will approve this and will be disbursed soon,” he elaborated. 

Having said that, he pointed out that Sri Lanka was successful in maintaining the rupee stable during last year even in the absence of such an infusion from the IMF.