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Monday December 11th, 2023

Sri Lanka forex reserves may fall to $6.2bn in 2019 in worst-case: CB Governor

ECONOMYNEXT –  Sri Lanka’s foreign reserves will at most fall to 6.2 billion US dollars by end-2019 due to the Easter Sunday attack, Central Bank Governor Indrajit Coomaraswamy said.

"At the start of 2019 we aimed reserves to be 8.2 billion US dollars," he told reporters in Colombo.

However, tourism inflows are projected to be 3.7 billion US dollars, compared to 5 billion US dollars at the start of the year, Coomaraswamy said.

He said around 300 million US dollars of the 1.3 billion US dollar fall are imports, leading to a 900 million US dollar hit to reserves.

Another 700 million US dollars in foreign direct investments will not come through, he said.

Coomaraswamy said another 300 million US dollars are expected to flow out of the bond market.

"So in the worst case, reserves will fall by 1.9 billion US dollars and we would end the year at 6.2 billion US dollars."

"But, we have managed with those levels before, so it is not a crisis," he said.

However other analysts say reserves – at least foreign assets of the central bank – are linked to monetary stability.

If the central bank sells down its Treasury bills, kills liquidity, whatever happens in the trade accounts or real economy, a surplus will be a created in the balance of payments.

If the central bank expands its domestic assets by printing money though deficit financing or lender of last resort operations, boost credit over and above the deposits and loan repayments of the banking system, the balance of payments will go into deficit.

This year bank credit is weak. To the extent that bank credit is weak, and credit is not expanded with printed money, central bank’s net reserves will go up.

Unless credit picks up, and large volumes of money is printed Sri Lanka is expected to register a balance of payments surplus. In any month where excess liquidity in the banking system goes up without money printing, the balance of payments is in surplus.

The year end reserve figure will also change due to the valuation of non-dollar assets (Euro, gold or yen holdings) and the interest earned on the foreign assets. (Colombo/Jun01/2019)


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Sri Lanka rupee opens at 327.00/50 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee opened at 327.00/50 to the US dollar on Monday, from 327.00/30 Friday, dealers said.

On the Colombo Stock Exchange, both indices opened up: The All Share Price Index 0.28 percent at 10,823, and the S&P SL20 0.35 percent at 3,113.85.

Bond yields were up.

A bond maturing on 01.08.2026 was quoted at 14.05/20 percent from 14.05/15 percent.

A bond maturing on 15.01.2027 was quoted at 14.05/20 percent from 14.10/25 percent.

A bond maturing on 01.07.2028 was quoted at 14.20/50 percent from 14.20/35 percent.

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Sri Lanka promoting Buddhist tourism from Vietnam, ASEAN

ECONOMYNEXT – Sri Lanka is planning to boost Buddhist tourism by linking temples in the country with those in East Asia, Foreign Minister Ali Sabry said after to welcoming a delegation of monks from Vietnam.

President Ranil Wickremesinghe, and Minister Sabry have initiated a temple-to-temple program where 100 Sri Lanka temples will be linked with counterparts in the Association of South East Asian Nations region.

“Tourism development will get a lot of growth with the temple-to-temple program,” Minister Ali Sabry said.

Along with the delegation of monks, five travel agents from Vietnam were also invited.

Under the first phase of the Temple-to-temple programs, several monks from Sri Lanka had received invitations from Indonesia, Malaysia, South Korea and Vietnam the Foreign Ministry said.

The Temple-to-Temple diplomacy program will be extended to Singapore, Japan, Thailand and Cambodia during the second phrase of the program.

Sri Lanka is targeting 2.3 million tourists in 2023, after getting about 1.5 million this year. (Colombo/Dec10/2023)

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ADB $200mn loan for Sri Lanka economic stabilization efforts

ECONOMYNEXT – The Asian Development Bank (ADB) has approved a US 200 million dollar concessional loan to Sri Lanka to help stabilize the country’s finance sector.

The Financial Sector Stability and Reforms Program comprises two subprograms of IS 200 million dollars each, according to a statement by the ADB.

“The program’s overarching development objective is fully aligned with the country’s strategy of maintaining finance sector stability, while ensuring that banks are well-positioned for eventual recovery,” ADB Country Director for Sri Lanka Takafumi Kadono was quoted as saying in the statement.

“The expected development outcome is a stable financial system providing access to affordable finance for businesses in various sectors of the economy.”

The ADB statement continues:

“Subprogram 1 targets short-term stabilization and crisis management measures that were implemented in 2023, while subprogram 2 is planned to be implemented in 2024 and focuses on structural reforms and long-term actions to restore growth in the banking sector.

The program will help strengthen the stability and governance of the country’s banking sector; improve the banking sector’s asset quality; and deepen sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises.

According to the International Monetary Fund’s (IMF) latest review, Sri Lanka’s economy is showing tentative signs of stabilization, although a full economic recovery is not yet assured.

The program is a follow-on assistance from ADB’s crisis response under the special policy-based loan that was approved for Sri Lanka in May 2023.

It is aligned with the fourth pillar of the IMF’s Extended Fund Facility provided to Sri Lanka to help the country regain financial stability.

It is also in line with the government’s reform agenda, including strengthening the operational independence of the Central Bank of Sri Lanka (CBSL) and its designation as the country’s macroprudential authority.

In designing this subprogram 1 loan, ADB has maintained close coordination and collaboration with the IMF to design targeted regulatory reforms for the banking sector—including the asset quality review—and with the World Bank on strengthening the deposit insurance scheme.

“The loan is accompanied by a $1 million grant from ADB’s Technical Assistance Special Fund to provide advisory, knowledge, and institutional capacity building for Sri Lanka’s Ministry of Finance and CBSL.”

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