India’s Reserve Bank currency swaps to boost Sri Lanka’s reserves; CB Governor

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Two currency swap arrangements in the pipeline with India’s Reserve Bank are key components in the immediate work plan of the Central Bank of Sri Lanka to boost its reserves, bank’s chief WD Lakshman said.

The governor was responding to the speculation that Sri Lanka had faced a foreign currency crisis in the midst of its debt service obligations.

“Inflows expected to the Central Bank include the SWAP facility of $250 million from the Bangladesh Bank expected in July 2021, the SAARC Finance SWAP facility from the Reserve Bank of India of $400 million expected in August 2021, and the special SWAP facility of $1,000 million being negotiated with the Indian counterpart,” he said.

Lakshman said the bank’s current focus was on managing Sri Lanka’s debt service obligations with the island’s Gross Official Reserves remaining at $4 billion, in addition to the standby SWAP agreement of approximately $1.5 billion with the People’s Bank of China.

Analysts say Sri Lanka’s debt service obligation would be in the region of $3.6 billion for 2021.

Sri Lanka is expecting to receive around $800 million under the IMF special drawing rights allocation due in August 2021, the governor said.

He said that there may be short-term fluctuations in the level of foreign reserves in the period ahead due to the debt servicing of the government. Adequate financing strategies have been lined up to maintain reserves at sufficient levels, through inflows to the country, the governor said.

These include non-debt inflows expected within a short period of time to the government, particularly through its new investment arm, and other inflows to the government from multilateral and bilateral sources.

Some of these inflows in the period ahead are expected to add to the official reserves as well. The recent enactment of the legislation on the Colombo Port City Commission will also help increase non-debt foreign exchange inflows, the Central Bank chief asserted.