Sri Lanka regains 3-month import cover of foreign reserves after 20 months

The import cover of the official reserves of the country surpassed the benchmark level of three months for the first time in nearly two years, as the reserves improved while the imports weakened, as a result of the demand destruction policies instituted by the officials since 2022.
Sri Lanka managed to rebuild its gross official reserves by about US $ 2.5 billion in 2023, to end the year with a reserve buffer of US $ 4.4 billion, a significant feat in a fairly short period of time since the country’s usable reserves plunged to near zero levels, just under two years ago.
Sri Lanka fell into its worst economic crisis in 2022, causing widespread shortages in commodities and firing runaway inflation for a prolonged period, after its foreign reserves ran short of what is required to pay for its monthly import needs.    
However, this import coverage is measured, including the yuan-denominated swap line, with the People’s Bank of China (PBOC), which has a dollar equivalent of roughly US $ 1.4 billion.

This swap line has been sitting with the Central Bank since March 2021 and was taken as part of the gross reserves from December that year, although its usability is subject to conditionalities.
The Central Bank said it hasn’t yet approached the Chinese authorities to unlock the facility, as it is not imminently needed although it may be possible to do.   
“Import coverage of GOR, including the PBOC swap, improved and surpassed the benchmark level of three months of imports by December 2023, for the first time since April 2021”, the Central Bank said in a press communiqué released to announce the external sector performance for December last