Sri Lanka's foreign reserves dropping to alarming levels?

COLOMBO (News 1st); Sri Lanka's foreign reserves have fallen to around US $ 4 billion, and this includes the country's gold reserves as well.

The country is to repay the US $ 1 billion loans taken from foreign markets in the next few days and the Central Bank says US$ 2.4 billion in foreign loans needs to be settled this year.

The government recently announced that it will not borrow from the international market and instead will seek to attract investment and enter into swap agreements with neighboring countries.

On Monday (28) the Governor of the Central of Sri Lanka in a statement noted that the Gross Official Reserves remain at USD 4 billion, without considering the standby SWAP agreement of approximately USD 1.5 billion with the People’s Bank of China.

Inflows expected to the Central Bank include the SWAP facility of USD 250 million from the Bangladesh Bank expected in July 2021, the SAARCFinance SWAP facility from the Reserve Bank of India of USD 400 million expected in August 2021, and the special SWAP facility of USD 1,000 million being negotiated with the Indian counterpart.

These are in addition to the receipt of around US dollars 800 million under the IMF SDR allocation expected in August 2021, and the Central Bank purchases of export proceeds and worker remittances from the market, which would help the Central Bank to build Official Reserves through non-debt inflows of around USD 700 million annually in the period ahead.

The announcement by the Governor of the Central Bank revealed that steps have been taken to restrict the use of foreign exchange for non-essential imports by the Sri Lankan banking system in consultation with the Central Bank.

According to the exchange rates issued by the Central Bank of Sri Lanka today, the selling price of one US dollar was 202 rupees 89 cents.

However, the local market players say that since there is no dollar available for this amount, the US dollar is trading between 220 and 230 rupees from various parties.

As per Cabinet decisions, Licensed Commercial Banks, National Savings Bank, and Non-Financial Companies Registered under the Companies Act No. 7 of 2007 have been permitted to purchase International Sovereign Bonds issued by Sri Lanka.

As a further solution to the crisis, the Cabinet had approved the listing of foreign currency denominated shares listed on the Colombo Stock Exchange to enable local companies to raise foreign exchange.

The Cabinet also decided to pay higher interest rates on special deposit accounts and to extend out-of-country remittance regulations to encourage the repatriation of foreign currency.

Cabinet Spokesperson & Minister, Keheliya Rambukwella speaking to reporters at the weekly cabinet media briefing noted Sri Lanka is facing an issue with its reserves, however, it is not at an alarming level.

'We have taken measures to suspend unnecessary imports as a solution to this,' said the minister.