Sri Lanka carries forward its low foreign reserves and unusable Chinese currency swap into 2023

by Sanath Nanayakkare

Sri Lanka has entered into 2023 with low foreign exchange reserves and its unusable Chinese currency swap.According to the Central Bank of Sri Lanka (CBSL), Sri Lanka’s gross official reserves were provisionally estimated at US dollars 1,806 million as at end November 2022 including the People’s Bank of China (PBOC) swap equivalent to around US dollars 1.4 bn, which is subject to conditionalities on usability.

The country has been pinning hopes on an IMF facility to increase its international reserves and pay its way through the world with potential funds from other multilateral lending agencies, subsequent to that. However, it was reported that the approval for US $2.9 billion International Monetary Fund (IMF) loan would be delayed beyond January 2023 contrary to earlier expectations due to complex debt restructuring negotiations with Sri Lanka’s bilateral creditors.

On December 21, State Finance Minister Shehan Semasinghe said that the government was trying its ‘level best’ to get the approval by the first quarter of 2023.Analysts say that the timing of the IMF approval is crucial for Sri Lanka to gradually improve its credit rating and gain access to the international capital market for USD borrowings.

According to State Minister Shehan Semasinghe, the government has fulfilled all the prior action from the government side and the delay is mainly due to negotiations dragging on with bilateral creditors, which he identified as a complex process.

Meanwhile, State Minister of Finance Ranjith Siyambalapitiya said yesterday that Sri Lanka would get the expected funds from the IMF, but he chose not to mention a specific time period for receiving it.As a result of this situation, Sri Lanka has stepped into Year 2023 without any foreign exchange reserves forecast.Foreign exchange reserves are used by governments to balance international payments and make stable the exchange rate.