Sri Lanka projected to end 2023 with US $ 3.8bn foreign reserves: IMF

Sri Lanka's gross foreign reserves are projected to reach US $3.8 billion by the end of 2023, according to International Monetary Fund (IMF) projections.

This figure falls short by US $600 million compared to the programme request, reflecting a slowdown in reserves accumulation during the second half of the year due to heightened demands for foreign exchange by banks.

During the first half of 2023, a current account surplus of approximately US$1 billion was realized, driven by a 19 percent year-on-year reduction in imports and a robust 75 percent year-on-year growth in remittances.

“However, Sri Lanka Development Bond (SLDB) restructuring led banks to close their resulting net open FX (FX NOP) positions by placing their foreign exchange assets abroad. 

Further, the continued foreign currency default rating of the sovereign made it difficult for banks and businesses to renew their letters of credit, causing them to pay down their external liabilities, including trade credits and loans,” the IMF said in a report. 

As a result, financial outflows, estimated at US$950 million by the end of June, saw a slowdown in accumulation, declining from US$1.25 billion in March-May to just US$50 million during June-September.

The report also highlighted that following a 22.6 percent appreciation between March and May, the rupee experienced a 10 percent depreciation from June to September. 

This occurred despite intervention by the Central Bank through direct sales amounting to US$150 million and support for a state-owned bank to reduce its FX NOP with a net basis of US$225 million.