Colombo, Dec 23 (PTI) Sri Lanka’s official foreign reserves, which dropped to USD 1.58 billion in November, will double to remain above USD 3 billion by the end of this year, the Central Bank here has said, asserting that the country’s economy showed resilience throughout 2021 despite the headwinds of the economic impact of COVID-19.
The bank said Sri Lanka has successfully met its debt obligations by repaying foreign loans, including the payments of the International Sovereign Bonds.
Progress is being made in negotiations other arrangements to bring in inflows, the Central Bank of Sri Lanka (CBSL) said in a statement on Wednesday.
Although no details of the expected inflows are given, the officials said a USD 1.5 billion swap with China was in the offing.
“Despite the headwinds of the economic impact of COVID-19 and challenges posed by adverse developments in the external sector, the Sri Lankan economy showed resilience throughout 2021. Also, Sri Lanka successfully met its debt obligations by repaying foreign loans, the bank said.
The statement came days after Fitch downgraded Sri Lanka’s sovereign rating to CC’ from CCC’, saying there is an increased probability of a default in coming months in light of the country’s worsening external liquidity position underscored by a drop in foreign-exchange reserves.
The New-York based rating agency said on Friday it will be difficult for the government to meet its external debt obligations in 2022 and 2023 in the absence of new external financing sources. Obligations include two international sovereign bonds of USD 500 million due in January 2022 and USD 1 billion due in July 2022, it said.
The downgrade reflects our view of an increased probability of a default event in coming months in light of Sri Lanka’s worsening external liquidity position, underscored by a drop in foreign-exchange reserves set against high external debt payments and limited financing inflows. The severity of financial stress is illustrated by elevated government-bond yields and downward pressure on the currency, it said in a statement.
Fitch says a currency swap facility with the People’s Bank of China (PBOC) could boost reserves by up to CNY 10 billion (USD 1.5 billion).
Since the beginning of the year, both the Central Bank and the government have been actively pursuing possible avenues to replenish official reserves, with an emphasis on encouraging non-debt flows, so that the existing foreign debt could be managed in a sustainable manner, the CBSL statement said.
The government and the Central Bank remain confident that these expected inflows will materialise and the reserve position will remain at comfortable level throughout the year 2022, the local media reported, citing the bank statement.
In order to tackle the reserves crisis, the island nation has curtailed imports leading to shortages of essentials.
The country’s only refinery was ordered to be shut mid-November due to shortage of foreign currency to import crude oil.