Sri Lanka’s official foreign exchange reserves, which fell to $ 1.58 billion in November, will double to stay above $ 3 billion by the end of this year, the Central Bank said here, claiming that the country’s economy has shown resilience throughout 2021 despite headwinds from the economic impact of COVID-19.
The bank said Sri Lanka has successfully fulfilled its debt obligations by repaying foreign loans, including payments on international sovereign bonds.
“Progress is underway in negotiations on other arrangements to attract capital flows,” the Central Bank of Sri Lanka (CBSL) said in a statement on Wednesday.
While no details on expected entries are given, officials said a $ 1.5 billion swap with China was in sight.
Despite the headwinds of the economic impact of COVID-19 and the challenges posed by unfavorable external sector developments, the Sri Lankan economy has shown resilience throughout 2021. In addition, Sri Lanka successfully fulfilled its debt obligations by repaying foreign loans, âthe bank said. noted.
The statement came days after Fitch downgraded Sri Lanka’s sovereign rating to “CC” from “CCC”, saying there is an increased likelihood of default in the coming months in light of the deterioration the country’s external liquidity position underlined by a decline in foreign exchange reserves. .
The New York-based rating agency said on Friday that it would be difficult for the government to meet its external debt obligations in 2022 and 2023 without new sources of external funding. “The bonds include two international sovereign bonds of $ 500 million due January 2022 and $ 1 billion due July 2022,” he said.
“The downgrade reflects our view of an increased likelihood of a default event in the coming months in light of Sri Lanka’s worsening external liquidity position, underscored by a decline in foreign exchange reserves against high external debt payments and limited financing inflows The severity of the financial stress is illustrated by the high yields on government bonds and the downward pressure on the currency, âhe said in a statement.
Fitch says a currency swap facility with the People’s Bank of China (PBOC) could increase reserves to CNY 10 billion ($ 1.5 billion).
Since the start of the year, the Central Bank and the government have actively explored possible ways to replenish official reserves, with an emphasis on encouraging non-debt flows, so that existing external debt can be increased. be managed in a sustainable manner, the CBSL statement said.
The government and the Central Bank remain confident that these expected inflows will materialize and that the reserve position will remain at a comfortable level throughout 2022, local media reported, citing the bank statement.
In order to cope with the reserve crisis, the island nation has reduced imports, leading to shortages of basic necessities.
The country’s only refinery was ordered shut down in mid-November due to a shortage of foreign exchange to import crude oil.
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