SL draws down Chinese swap to close 2021 with US$ 3.1bn foreign currency reserves

A few days before the end of 2021, the Central Bank said it increased its foreign currency reserves above US$ 3.0 billion and would maintain such reserves at that level until the yearend, making good on its earlier pledge but failed to explain how it had done so.

According to the yearend official data, the foreign currency reserves were at US$ 3,137.6 million.

However, as the year drew to a close, it became clear that the Central Bank had resorted to drawing down a swap facility it had with the People’s Bank of China of RMB 10 billion, equivalent to approximately US$ 1.5 billion, to beef up the reserves after it plummeted to a mere US$ 1.6 billion in November. 

It sparked enormous concerns about the economy’s solvency, and its ability to repay debts. 

Under these trying conditions, a section of economists advocated to hold off on settling its lenders as the Central Bank last week said it allocated funds for the US$ 500 million international sovereign bond coming due on January 18, considering the massive hardships undergone by the public due to soaring prices and shortages in crucial commodities such as cooking gas and milk powder.

Adding to the list of items that could become short of supply as soon as from this week, All Ceylon Bakery Owners Association warned of potential shortages in bread as flour importers are hamstrung as they get only 1/10 of the dollars they require. 

Meanwhile, Public Utilities Commission of Sri Lanka yesterday granted permission to Ceylon Electricity Board for scheduled 1-2 hours of power cuts from today, due to shortage of furnace oil. 

What could potentially exacerbate the prevailing woes would be the mammoth Rs.229 billion so-called relief package announced by the government last week, to be distributed among the most unproductive segments in the economy i.e. public service, farmers and households to grow, ‘Ala, Batala, Manioc’ to provide for one’s family, largely due to the government’s rash fertiliser policy. 

The move is diametrical opposite to what other governments and central banks are doing around the world, as they are seen rolling back their COVID-19-infleinced stimulus packages, which have resulted in higher inflation.