Sri Lanka foreign reserves fall to uncomfortable levels after July

Sri Lanka foreign reserves fall to uncomfortable levels after July

5 March 2021 06:06 pm

Sri Lanka foreign reserves will fall to uncomfortable levels after the July 2021 repayment of US$1 billion  is repaid but they may still muddle through next year

 Forex reserves were estimated at 4.6 billion US dollars in February 2021, down from 4.8 billion a month earlier, Director of Economic Research, Chandranath Amarasekara said.

“Official reserves were provisionally estimated at 4.6 billion dollars by the end of February,” Amarasekara said.

In 2021, the total debt service payment is estimated to be US$ 6865 million and $ 1514 million as interest payments. 

These details were revealed in a memorandum of financing the Budget 2021 formulated by the Finance Ministry recently.

The interest payments and capital repayment of Foreign Currency Banking Unit loans( FCBUs)  and SLDBs are estimated at $2664 million.

During the year 2021 SLDB’s worth $ 1325 million and it is expected to raise $2000 million (Rs.376b billion) through the issuance of SLDBs, Memorandum disclosed.

 In addition $ 1170 million worth of FCBUs raised from the Bank of Ceylon and the Peoples Bank will be matured this year and the Treasury will raise loans to repay it from the same channel.

 The government will also be appealing for international investors to roll over bonds maturing this year, a further sign of the island nation's grim financial situation.

The government estimates  gross FX reserves of US$5.86bn in Oct is enough to cover about 55% of total external financing requirements.

Capital and import controls help slow the pace of reserve decline and the rupee does not look grossly misaligned.

If we assume short term debt and official loans are rolled over, and China lends an additional $800mn to Sri Lanka in 2021, reserves should fall to $3.5 bn in end of 2021 giving the authorizes  room to muddle through next year.

The Central Bank repaid a 400 million US dollar swap to the Reserve Bank of India in February 2021.

It had not sold any dollars to defend the rupee during the month, Deputy Governor Dhammika Nanayakkara said.

The central bank repaid a 400 million US dollar swap to the Reserve Bank of India in February 2021.

It had not sold any dollars to defend the rupee during the month, Deputy Governor Dhammika Nanayakkara said.

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