Foreign reserves dwindle to US$ 4.1bn in March

The Central Bank together with the government is pursuing several avenues to prop up its foreign reserve buffers, which had by end-March depleted to US$ 4.1 billion, which is sufficient to cover only three months of imports. 

Assuaging concerns over reserve adequacy, Central Bank Governor Professor W.D. Lakshman said they already have a swap line equivalent to US$ 1.5 billion from People’s Bank of China, which the Central Bank entered into recently, while another loan is due from China Development Bank. 

China Development Bank in March 2020 gave Sri Lanka US$ 500 million as budget support to deal with the economic fallout from the virus out of a US$ 1.2 billion loan earmarked for the country. Hence, another US$ 700 million remains to be released. 

“In addition, the country is also pursuing quick disbursement kind of funding,” Prof. Lakshman said.

Officials representing the Central Bank, the government and State banks are currently on a road show to the Middle East to explore avenues for foreign currency funding.   “Within the next few weeks, there will be more positive news,” Prof. Lakshman added.  Sri Lanka’s foreign exchange reserves took the plunge since the onset of the virus as commercial avenues for the country to make borrowings ran dry with the market turmoil brought in by the pandemic.  As a result, foreign reserves fell from US$ 7.6 billion end-2019 to US$ 5.7 billion end-2020. Sri Lanka has already settled about US$ 1.3 billion foreign currency loans due for this year. Another billion dollar sovereign bond is due this July. 

The Central Bank and the government have reiterated their commitment to maintain the country’s immaculate record in meeting all its foreign currency commitments as and when they fall due. Sri Lanka is consciously reducing its reliance on foreign borrowings while resorting to more non-debt creating inflows to re-build reserves.