- But rupee strengthened amid import controls and gradual pick up in export activities
- Reserves as at end-May at Rs.6.5bn providing four months import cover
- SL has US$ 3.3bn debt servicing for remainder of the year including US$ 1bn ISB
Sri Lanka’s gross official reserve lost US$ 715.92 million during May to end the month at US$ 6,493.6 million, but the rupee continued its ascend against the US dollar, alleviating concerns of a possible run on the rupee amid controls on certain imports and gradual pick up in export activities after lockdowns.
The authorities recently said its interventions in the currency market is “very minimum,” and ruled out undue pressure on the balance of payment, underscoring the belief that subdued imports resulting from the import controls and low oil prices to largely offset the low earnings from tourism, worker remittances and other exports to narrow the current account deficit.
In fact, the Central Bank says the rupee is currently under pressure to appreciate and denies speculation that it was defending the rupee using reserves.
Sri Lankan rupee appreciated to Rs.186.07 by May-end and further to Rs.185.14 against the US dollar from 193.12 in April-end.
The year-to-date depreciation of the rupee against the US dollar is 1.9 percent.
Sri Lanka had external reserves of US$ 7, 642 million at the end of 2019 and it slipped to US$ 7, 209 million during the four months through April 2020 with the bulk of the decline occurring in April as foreign earnings ran dry due to a global trade and travel coming to a halt due to coronavirus related lockdowns and with the Central Bank settling some foreign currency loans.
Current reserves provide four months of import cover and imports remain subdued.
During the first four months, the Central Bank settled foreign loans amounting to US$ 1.6 billion and has US$ 3.3 billion to be settled during the remainder of the year, including the billion dollar sovereign bond coming up for maturity in October.
Allaying fears with regard to the country’s ability to meet all its debt obligations falling due this year, the Central Bank reiterated that the current reserve position and the re-forecast foreign earnings plus the upcoming SWAP lines place the island nation in a comfortable position to settle its foreign obligations.
While Sri Lanka may receive some relief on foreign debt by way of deferments, the country is also negotiating with the International Monetary Fund (IMF) and other multilateral and bilateral partners for more funds.
Some small scale grants have already come to help Sri Lanka emerge from the pandemic caused economic hardships.
“With all these plans, we are very confident we would be able to meet all these debt servicing obligations during the balance period,” Central Bank Senior Deputy Governor Dr. Nandalal Weerasinghe said, adding that they could also launch a sovereign bond towards the latter part of the year or early part of next year as markets appear to be recovering faster than many expected.