CB expects to end 2021 with over US $ 3.5bn foreign reserves

• Witnesses acceleration in export proceed conversions in October and November
• Collects US $ 150mn each from remittances and export proceeds thus far   
• Says concerns over moves to remittance securitisation are unfounded 
• Points out yuan-denominated swap facility with People’s Bank of China can be drawn down at anytime
• Says sold a net US $ 72mn in Oct. to fend off pressure on domestic forex market 

The Central Bank says it would end the year with over US $ 3.5 billion in foreign exchange reserves, recouping from the recent depths they fell in September and October, as several bilateral funding lines are expected to be realised while the collections from non-debt-creating inflows from remittances and exports have seen a notable increase as of late. 

The official reserves fell to US $ 2.3 billion in October, sending jitters across the markets of the ability of the government to meet its future debt obligations, as even after two months since the unveiling of the six-month road map by the Central Bank, there was still no sign of any of the inflows listed 
there materialising. 

The Central Bank listed US $ 3.9 billion worth of fresh inflows for the three months to December 2021, other than the inflows to the forex market via credit lines, forex deposits and portfolio inflows and other merchandise and service exports. 

But as the markets grew sceptical over the credibility of such inflows, they started raising questions over their progress.   

“When it’s a short-term plan, you have always got to make sure that there is a certain time span in which so many of those initiatives could be implemented. We started implementing from October 1 and that is very clearly being managed and processed very carefully,” said Central Bank Governor Ajith Nivard Cabraal, responding to a query on the matter, while adding negotiations with several parties on funding lines are at an 
advanced level. 

“By November 30, we will give you an update, which will be quite extensive and you will have that opportunity to go through that,” he told the monetary policy presser held last Thursday (November 25). However, the Central Bank issued no update on Tuesday 
(November 20). 

Meanwhile, Finance Minister Basil Rajapaksa left for India this week and he is reported to have intended of holding high-level talks to obtain a US $ 1.5 billion worth of bilateral credit line to shore up the country’s depleting reserves. 

Speaking last week, Central Bank Director Economic Research Dr. Chandranath Amarasekara however reassured the markets that they would end the year with over US $ 3.5 billion in foreign reserves. 

However, the officials weren’t very clear whether the reserves would include the roughly US $ 1.5 billion worth of yuan-denominated swap line the Central Bank has with the People’s Bank of China, which has been kept aside for months as a stand-by facility. 

“The measures taken by the Central Bank and government to attract fresh forex inflows as well as the anticipated inflows to the private sector, including the financial sector, are expected to augment the official reserves and thereby strengthening the external sector in the period ahead,” Amarasekara said.  

“We expect to end the year with more than US $ 3.5 billion of reserves,” he added. 
Responding to a question over the ability of the Central Bank to draw down the yuan-denominated swap line into its external reserves, Cabraal said it is very much a possibility but would do so, should they feel the need to do so. 
There was some vagueness building until last week whether the Central Bank could draw down 
the facility. 

“We have kept that as a stand-by, in case we want to draw it. But if we draw it, then we will take it into our reserves,” Cabraal added. 

Meanwhile, the Central Bank has also seen a notable acceleration in the conversions of export proceeds during October and November, enabling it to collect US $ 150 million each from export proceeds and remittances thus far during the year in rebuilding their reserves via non-debt-creating inflows.  The Central Bank expects further acceleration in such conversions in December. 

“In the last one month, we have seen an appreciable rise in that and very soon we will probably see in December with new regulations kicking in and when that happens, we expect a fairly substantial flow,” Cabraal added. 
Meanwhile, commenting on the allegations thrown in at the recently announced move to securitise remittances, Cabraal shrugged them off calling them as “complete fallacy”. 

“There were misrepresentations that were made by certain quarters to the effect that it is a mortgage of remittances and so on,” he added. 

Meanwhile, during October, the Central Bank had a tough time managing the currency in the foreign exchange market, as it had to sell foreign currency worth of US $ 113.37 million and managed to purchase only US $ 41.05 million, turning into a net seller of US $ 72.32 million.