• Expresses confidence reserve position will remain at comfortable levels throughout 2022
• Blames hasty and inexplicable decisions of certain rating agencies to downgrade the Sovereign for undue delays in certain expected foreign currency inflows

The Central Bank (CBSL) yesterday revealed that the country’s official reserves position by yesterday had increased to $ 3.1 billion and that more inflows were expected to be realised by early next month. 

In a statement, CBSL said that, as announced on 22 December 2021, the expected foreign currency inflows were forthcoming and with the receipt of recent inflows, the official reserves position had now reached around $ 3.1 billion, and is expected to remain at such a level by the end of 2021 as well. 

The CBSL statement didn’t reveal by how much reserves have increased or the source of inflows, but forex market sources said reserves had plunged to less than $ 1.5 billion by mid-December and that the latest position was following the drawdown of Yuan 10 billion ($ 1.5 billion) swap arrangement with the People’s Bank of China.

Following the last monetary policy review for 2021, the CBSL in November said gross official reserves were estimated at $ 2.3 billion by the end October 2021. This it said, however, did not include the bilateral currency swap facility with the People’s Bank of China (PBoC) of CNY 10 billion (equivalent to approximately $ 1.5 billion).  

CBSL Governor Nivard Cabraal in fact made it a point to stress on the reserves figure sans the Chinese swap as Opposition MPs and critics in the forex market insisted swaps could not be included in the truest sense of reserves. 

Be that as it may, the CBSL in its statement yesterday said that as articulated in the six-month road map for ensuring macroeconomic and financial system stability, foreign currency inflows in connection with several other facilities that are under negotiation at present, were expected to be realised in the early part of January 2022.

It said the measures taken with a view to improve foreign exchange liquidity in the domestic market, such as introduction of incentive schemes for workers’ remittances, and the rules covering the repatriation and conversion of exports proceeds were also augmenting official reserves. 

“The welcome robust recovery in the tourism sector and the strong performance in exports are further buttressing the external sector. Accordingly, the Government and the Central Bank are confident that the reserve position will remain at comfortable levels throughout the year 2022,” the statement added. 

CBSL also said that in this background, it was unfortunate that the “hasty and inexplicable” decisions of certain rating agencies to downgrade the Sovereign, even in the face of clear reassurances of impending forex inflows, had caused unnecessary losses in the secondary market to investors in International Sovereign Bonds issued by the Government.

“Such rating actions also weighed negatively on investor confidence, resulting in undue delays in certain expected foreign currency inflows which may have materialised earlier, if not for such unwarranted and questionable rating actions,” CBSL added. 

Fitch Ratings, earlier this month, downgraded Sri Lanka’s rating to ‘CC,’ the lowest rating prior to default. Sri Lanka has an estimated $ 7 billion in total debt servicing in 2022. Concerns over Sri Lanka’s vulnerabilities come despite the country having serviced $ 6 billion of debt repayment in 2020 and 2021 amidst the pandemic and its impact. 

Harsha says highly questionable ad-hoc measures will not ease severe forex crisis