Foreign reserves at US$ 5.9bn post sovereign bond settlement

• No pressure on rupee as forward rates point to little appreciation 
• SL has little under US$ 600mn in foreign liabilities through January 2021
• Foreign liabilities from February 2021 through January 2022 at US$ 4.9bn 
• That includes US$ 1bn sovereign bond settlement due in July 2021

Sri Lanka’s external foreign reserves in October were at just under six billion dollars even after the government settled a billon dollar sovereign bond earlier in the month, while the remaining outstanding dollar denominated debt for the remainder of this year is estimated at   less than US$ 600 million. Sri Lanka’s external foreign reserves were at US$ 5,858.5 million by end-October, down from US$ 6,666.3 million as at end-September, a decline of US$ 807.8 million reflecting the effect of the aforementioned bond repayment. 

The reserve buffer, although somewhat trimmed, is still sufficient to cover over 4 .1 months of imports into the country and the remaining foreign currency debt for the year. 

While it is too early to conclude, the somewhat softened domestic consumption during October due to the lockdowns and the uncertainty over the extent of the restrictions to stem the spread of coronavirus, could have had a negative implication on the import orders placed during that month as traders fear stocking more goods should lockdowns continue. 

This is amid the temporary restrictions in place on non-essential imports since March, which was necessary in containing an otherwise bloated merchandise trade deficit, and thereby the reserves and the currency. 
Despite the lockdowns in the Gampaha district since early October, the provisional data for the month showed that merchandise exports have largely held up recording US$ 900 million in earnings, compared to US$ 977 million exports in October 2019. 

Sri Lankan rupee depreciated 1.5 percent against the greenback this year through November 6.
Forward traders of the currency also do not see pressure on the rupee as one-month forward rate quoted on November 6 was at Rs.184.45 for a dollar and three-month forward was quoted at Rs.184.54— both rates indicating an appreciation from Rs.184.50 and Rs.184.57 a week ago. 

Last week, State Finance Minister Ajith Nivard Cabraal tried to dispel concerns over Sri Lanka’s inability to service its external debt while touting the country’s immaculate repayment record amid worst of times. 

The country is negotiating a US$ 700 million loan from China Development Bank at rates significantly favourable to sovereign bonds, as claimed by the State Minister while the government earlier said it was in talks for another US$ 1.0 billion swap facility with the Reserve Bank of India. According to data, the government has external liabilities of US$ 588.2 million from October through January 2021 and US$ 4.9 billion from February through January 2022 with its next sovereign bond settlement of one billion dollars falling due in July 2021.