Sri Lanka’s gross official reserve assets which provide a buffer against external shocks is inching towards US$ 6.0 billion, nearly three years after the usable balance fell under a mere US$ 50 million, triggering the economic crisis in early 2022.

According to the data available through September 2024, Sri Lanka has now rebuilt its gross official reserves to US$ 5,992 million from US$ 5,959 million in August.

This includes however the roughly US$ 1.4 billion equivalent Yuan denominated currency swap line from China which has conditionalities on its usability.

Sri Lanka was able to rebuild its external reserves with the recovery in tourism and remittances while being on the debt standstill on most foreign currency loans.

The imports were, until recently, low due to demand destruction policies instituted by both  Central Bank and the government in the last two years.

This helped the Central Bank to collect dollars from the domestic foreign currency market in rebuilding the reserve assets.For instance in September, the Central Bank purchased US$ 108.5 million from the banks and sold only US$ 12.5 million, continuing its streak of being a net purchaser of foreign currency.

In August, it bought a net US$ 148.5 million in foreign currency to strengthen the reserves buffer.

This record underlies how the Central Bank was able to rebuild the reserve buffer and also the appreciation pressure on the rupee against the dollar.

If not for these dollar purchases, the rupee could have further gained in value this year. While the Central Bank practices mostly a hands free approach on managing the currency, they intervene to ensure that there is no sizable volatility in either direction.

Year-to-date, the rupee has appreciated by a solid 10.5 percent and the currency was trading at 292.96 to a dollar at the close of Friday compared to 323.41 a year ago. This was on top of a 12 percent appreciation in 2023.   

The reserve strength also helped the Central Bank to give their green light last month on re-opening personal vehicle imports from February next year, after 5 years.

The vehicle imports were first banned in March 2020 at the onset of the pandemic as a precaution to prevent undue pressure on the reserves as the tourism earnings came to a standstill and other potential inflows also weakened.