External cash flows worked out to repay forex loans in time - State Minister Cabraal | Sunday Observer

External cash flows worked out to repay forex loans in time - State Minister Cabraal

1 August, 2021
Ajith Nivard Cabraal
Ajith Nivard Cabraal

Sri Lanka has worked out its external cash flows in such a manner that every forex loan repayment and interest payment will be made on time, through the careful management of its reserves and expected inflows and outflows, State Minister of Finance and Capital Market Development, Ajith Nivard Cabraal said.

He said several Opposition groups have been speculating about Sri Lanka’s Forex Reserve level and attempting to convey a status of instability.

In that context, it must be stressed that what is most important is the cash flow, not the Reserve level at a given time.

Experienced finance managers will keep a close watch on the cash flows as they very well know that temporary fluctuations in the reserve level may occur, but that no destability will be caused if the cash flow is managed successfully.

The inflows over the next three months, as per the country’s forex pipeline amounts to nearly USD 2,650m which comprises a SWAP from India amounting to USD 400 million, a SWAP from Bangladesh - USD 250 million, a loan from the China Development Bank - USD 300million, the Special Drawing Rights allocation from the IMF - USD 800million, Central Bank purchases from the forex market in the next three months - USD 200m, inflow from ISBs held by local banks - USD 300m and expected inflow from the utilisation of under-utilised assets - USD 400 million.

The Central Bank has also successfully negotiated a SWAP arrangement with the People’s Bank of China for USD 1500m, which too, can be accessed and hence could be included as a part of its effective reserves, Cabraal said.

Arrangements are also being made, according to the State Minister, to roll-over almost the entirety of the SLDB and FCBU loans that are maturing over the balance part of the year, so that such maturities will not lead to a reduction in the Reserve.

With the repayment of the ISB on July 27  this year most of the Government’s foreign debt service obligations for this year have been repaid, allowing the country to replenish its reserves during the remainder of the year, he said.

Since the current Forex Reserve balance is at around USD 3 billion after the payment of the ISB of USD 1 billion on July 27, the available reserves within the next few months would be over USD 7 billion, when considering the expected inflow and outflow.

The government settled the  USD 1 billion International Sovereign Bond Issue on July 26.

Cabraal said the funds were transferred  to repay the USD 1 billion bond by the Treasury on Tuesday, July 27, keeping intact its reputation for honouring debt as concern mounts about the nation’s overseas financing.

Meanwhile Moody’s Investors Service put Sri Lanka’s ratings under review last week, citing its assessment of the country’s increasingly fragile external liquidity position and the risk of default. As of end June 2021, the gross official reserves were estimated at USD 4.0 billion, similar to the levels observed at end May 2021 (this does not include the bilateral currency swap facility amounting to CNY 10 bn (equivalent to approximately USD 1.5 bn) between PBoC and the Central Bank) 

The Central Bank noted that although the level of foreign reserves could experience some variations in the period ahead, such developments are expected to be temporary, with the adequate financing strategies lined up to maintain reserves at sufficient levels and to meet all maturing debt servicing obligations of the Government on time.