Govt. slammed for failing to build foreign reserve buffers

• Opposition MP Imthiaz Bakeer Markar points out how other SA nations, except Afghanistan, beefed up foreign reserves despite pandemic
• SL foreign reserves dipped to US $ 2.3bn by end-October, from US $ 2.7bn in September
• Says flawed CB’s exchange rate policy has pushed migrant workers to move back to informal channels to send money 
• Questions where promised inflows in six-month road map presented by CB Governor Cabraal are

In the absence of policy guidance, the government has failed miserably to build up its foreign reverses in contrast to other South Asian governments, which have beefed up reserves to meet the external challenges, a senior Opposition lawmaker charged. 

“All South Asian nations, except Afghanistan, have been able to increase their foreign reserves, despite the pandemic; even foreign reserves of Pakistan have risen. Meanwhile, our gross official foreign reserves have depleted to record levels and net foreign assets of our Central Bank (CB) have turned negative,” Opposition MP Imthiaz Bakeer Markar said in taking part in the 2022 budget debate in Parliament yesterday.

The country’s foreign exchange reserves dipped to US $ 2.27 billion by the end of last month, from US $ 2.7 billion in September.

Markar noted that the country’s net foreign assets held by the CB turned negative in August, as the foreign liabilities exceeded the foreign assets.

He argued that the pandemic should not be an excuse, given the other South Asian nations, except Afghanistan, have been successful in beefing up their respective foreign reserves.

Commenting on the recent decline in remittance inflows, he noted Sri Lankan migrant workers are moving back to informal channels to transfer the funds back to Sri Lanka, as the CB continues to hold the exchange rate artificially high. He pointed out that this has also contributed to the decline of the country’s foreign exchange reserves.

Although the newly-appointed CB Governor Ajith Nivard Cabraal in his ‘Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability’, unveiled in October, pledged to bring fresh US $ 10 billion in fresh foreign exchange outflows over the six-month period, Markar highlighted that the CB is yet to bring any additional inflows.

 “The CB Governor mentioned of credit lines from India and Oman. However, one and half months have elapsed, we are yet to see any foreign exchange inflows,” he added.

In this backdrop, he noted that all three major global credit rating agencies downgraded the country’s sovereign credit rating beyond junk bond rating and they now expect the country to default International Sovereign Bond (ISB) repayments falling next year.

In the absence of future-oriented policy framework, Markar warned that Sri Lanka is heading towards a similar restrictive environment seen in 1970s, where both economic and political freedoms of the people were severely restricted.