SL loses nearly half a billion dollars in reserves in May

• As at end-May SL’s foreign reserves were just above US$ 4bn, barely adequate for three months of imports 

Sri Lanka lost nearly half a billion dollars in foreign exchange reserves in May, losing nearly the entirety of the loan proceeds received from the China Development Bank in April.

The foreign exchange reserves, a key gauge of the strength of country’s external sector resilience fell by US$ 452.6 million in May, erasing nearly the entirety of the US$ 500 million received in April as loan proceeds from China Development Bank. 

With the erosion in foreign assets in May, Sri Lanka had reserves just above US$ 4.0 billion by the end of May—a 10-year low— while the country is required to settle another billion dollar International Sovereign Bond in a month.  

Meanwhile, the falling exports earnings due to issues faced by the factories in getting their employees back at work as a result of ongoing restrictions and rising oil prices in the global market are adding a fresh strain on the country’s external sector, which spills into the real sector as seen from the upward price revision in fuel prices last week. 

Mirror Business predicted the crisis brewing in the country’s external sector from the persistently higher global oil prices days before the government decided to revise the prices up on Friday as all its economic projections were made at the beginning of the year assuming oil prices at US$ 60 a barrel. 

However, now that the prices stay consistently above US$ 70 a barrel, it spells doom for countries such as Sri Lanka, which entirely depends on imported petroleum.

The external reserves as of May-end were barely sufficient to cover three months of imports, and the imports jumped in March to nearly US$ 2.0 billion due to the higher crude oil bill and the recovery in consumption. 

According to Central Bank data, Sri Lanka has US$ 1.48 billion in foreign liabilities to settle in June while another US$ 1.9 billion from July through September, which together account for US$ 3.38 billion, just shy of the current reserves buffer.