Sri Lanka ends up purchasing just shy of US$ 2.0 bn in net forex in 2023

• CB extends net purchases to fourth month in a row with US$ 113 mn buying in December

The Central Bank closed 2023 turning into an outsize net purchaser of foreign exchange from the domestic foreign exchange market which in part helped to rebuild the foreign currency reserves to a relatively formidable level of over US$ 4.0 billion from near rock bottom levels roughly two years ago.
Data showed that the Central Bank had managed to extend its streak of being a net absorber of foreign exchange from the banking system for the fourth consecutive month in December with US$ 113 million in foreign currency purchases.

This brought the total net purchases of foreign currency in 2023 to US$ 1,895.87 million, turning it to an outsize figure given the trying conditions in the external sector. Except in the three months from June through August, the Central Bank emerged as a net purchaser of foreign exchange in every other month, the monthly data showed.
This partly helped the Central Bank to bring the gross official reserves to US$ 4.4 billion by the end of last year.

The reserves were also supported by the receipt of two tranches of programme support from the International Monetary Fund, other multilateral funding flows from the World Bank and the Asia Development Bank, and more notably the fast recovery in inflows from remittances and the tourism trade. In December alone Sri Lanka received roughly US$ 787 million collectively from these institutions helping to bolster its reserves position.   The subdued imports due to demand destruction policies stood in place during most part of 2023 and the suspension of most types of foreign currency debt repayments also softened which otherwise would have been yet another tough year for the Balance of Payment.

If not for the debt standstill announced in April 2022, Sri Lanka had to service roughly US$ 6.0 billion every year to service its foreign currency debt.
These outsize debt service payments amid weakened inflows caused predominantly by the pandemic induced disruptions were why Sri Lanka ran out of its reserves causing the economy to crash land in early 2022.
Sri Lanka seeks to buy more breathing room when servicing its foreign currency debt and create more wiggle room to rebuild its foreign currency reserves going forward via direct purchases by restructuring its foreign currency debt with maturity extensions and coupon reductions.