ECONOMYNEXT – Sri Lanka can raise 3 to 4 billion US dollars to build reserves by selling of state enterprises, President Ranil Wickremesinghe has said as the country grapples with the worst currency crises in the history of its intermediate regime central bank.
“The only way in which we can raise foreign exchange reserves is by selling off some of our enterprises for dollars so that we can at least put $ 3-4 billion into the reserve, strengthening the rupee further,” President Wickremesinghe had told a forum of tea factory owners, according to a statement from his office.
“This is the only step that we can take because so far having a vast state sector did not enable the economy to grow that fast.”
Sri Lanka has signed a staff level agreement with the International Monetary Fund and is expecting formal approval and a disbursement after re-structuring assurances are received from bilateral creditors, hopefully by January 2023.
Under an IMF program a foreign reserves are increased under a net international reserve target by curtailing domestic credit and mopping up inflows by selling down its domestic assets (operating deflationary policy), effectively reversing the process through which reserves were lost.
A soft-pegged central bank loses reserves by printing money triggering pressure on the currency and selling reserves to stop the currency from falling.
When rates are mis-targeted with printed money (through the operation of inflationary policy), the country also loses the ability to collect reserves to repay debt, further accelerating reserve losses and leading to default in market access countries with bullet repayment loans which investors are unwilling to rollover. (Colombo/Nov01/2022)