Central Bank caps back-to-back years of outsize FX purchases in 2024

• CB ends up purchasing US$ 2.85bn in FX from banking system in 2024 

The Central Bank ended 2024 purchasing potentially the largest amount of foreign exchange from the domestic banking system for a single year in their quest to rebuild the foreign currency reserves to a more formidable level since its depletion to its lowest point back in 2022.

Continuing its streak of net purchases, the Central Bank purchased US$ 231.3 million in foreign exchange from the domestic banking system in December 2024 and sold US$ 22.5 million in the same month, bringing the net purchases in the month to US$ 208.8 million. This marked a decline from US$ 327.0 million in net purchases in November, but up sharply from the US$ 113.0 million in net purchases in the same month a year ago.  

This brought the total net foreign currency purchases for the entire 2024 to US$ 2,845.8 million, up substantially from the US$ 1,896.0 million purchased on a net basis in 2023, capping two years of back-to-back net absorptions of foreign currency.

Although the year-end position is yet to be published, this continuous foreign currency purchases from the banking system helped the Central Bank to rebuild the official reserve assets to US$ 6,451.0 million by the end of November 2024, from US$ 4,400.0 million at the end of December 2023.
This however includes roughly US$ 1,400.0 million equivalent Yuan denominated SWAP facility with the People’s Bank of China which has conditionalities on its usability.

The continuous accumulation of foreign currency from the banking system was possible due to robust inflows from both remittances from the Sri Lankans working abroad and also strong earnings from tourism and  exports.
This was amid Sri Lanka suspending most of its foreign currency repayments since April 2022 which also helped to rebuild reserves if otherwise would have been a toll order as the country on average had about US$ 6.0 billion worth foreign currency debt to be serviced for an year at the time.
All forms of debt have now been restructured under terms mostly favourable to Sri Lanka with part of its debt being cut off from the need to repay, which is referred to as the haircut with maturity extensions and average coupon reductions.

The Central Bank aims about US$ 10.0 billion of reserves to sufficiently cover around US$ 4.0 to 5.0 billion of foreign debt repayments falling due in the next 12-months, more than adequately covering 100 percent of the short-term liabilities.

While reserves’ coverage of short-term liabilities is one such measure of a country’s strength and adequacy of reserves in current times, its coverage of imports in number of months has been a more traditional measure of reserve adequacy.
Sri Lanka’s current reserves now cover around 4 months of imports which is around US$ 1.5 billion.