Sri Lanka’s foreign currency reserves were estimated at US $ 1,939 million by end-March, as the country lost US $ 372 million during the month, the latest data released by the Central Bank showed.
This was despite the floating of the rupee, which many economists said would provide the bulwark to protect valuable reserves.
The Central Bank floated the rupee on March 7, letting go of the untenable peg set for more than six months at Rs.203 to a dollar, since the country didn’t receive the much-hyped foreign inflows as announced in the six-month road map of the Central Bank.
The rupee was quoted at 321.49 against a US dollar yesterday in the official market but the kerb mark is operating in the north of Rs.500 to a dollar, according to sources.
When the Central Bank let the rupee go, it had US $ 2,311 million worth of reserves by end-February 2022.
The March-end reserves consisted of the US $ 1.5 billion equivalent yuan-denominated currency swap with People’s Bank of China and US $ 29 million worth of gold reserves.
The March reserves reflect the precarious situation Sri Lanka is placed at present, as they are roughly equivalent to only a month of imports.
In the last seven months, Sri Lanka has been facing shortages of key commodities from milk powder, to cement to cooking gas, etc., which expanded to fuel in February, hampering all economic activities.
The absence of sensitivity of the seriousness of the hardships faced by the public and lack of urgency by the government in resolving the crisis brewing for months, broke out to an all-out political crisis a fortnight ago, making the once powerful governing coalition teetering.
People are continuing their struggle peacefully on the roads, mainly demanding the resignation of President Gotabaya Rajapaksa and his government. Sri Lanka is estimated to have lost nearly US $ 20 billion in foreign inflows during the last two years of the pandemic from an aggregate of tourism, merchandise and services exports, remittances, portfolio and direct investments.
Sri Lanka on average has about US $ 4.5 billion in foreign debt repayments annually through 2026.
No amount of monetary policy adjustments or liberal policies would address the urgent issues at hand than increasing the dollar liquidity by at least US $ 3-4 billion in the next nine months with adjustment to its foreign debt repayment schedule.
Sri Lanka cannot go on consuming foreign goods and services, which need dollars to pay unless the country earns in dollars.