“We have repeatedly assured everyone that the country will never default on loan repayment and that foreign reserves are being built, according to a plan,” said Central Bank Governor Ajith Nivard Cabraal
“We have taken timely measures to build foreign reserves to service imports and meet debt obligations. We have never defaulted and would never in the future too,” Cabraal said.
Gross official reserves dropped to around USD 1.5 billion in October following a sharp declining trend since mid last year owing to a drastic dip in the number of tourist arrivals and foreign remittances.
Foreign reserves are being built up according to an already announced plan which we are implementing diligently. We announced it on October 1 last year. There is nothing sudden about it, Cabraal said adding that
there would not be a food shortage as exaggerated by certain factions.
The Central Bank scoffed off rumours last week that banks had been ordered by it to forcibly convert balances in their customers’ forex accounts.
The bank allocated the forex for the USD 500 million International Sovereign Bond maturing on January 18.
Economists and financial analysts have been harping on the need to seek a bail out from the IMF to ward off a forex crisis that would stifle economic growth.
The Government is unlikely to seek a bailout from the International donor with the Cabinet failing to reach a consensus last week as most Cabinet members failed to see eye to eye with the need to seek financial support from the global lender and that many of the members do not agree with pre-conditions that would accompany with the funding
The Central Bank said last month that the country will end the year with gross official foreign reserves crossing US$ 3 billion scoffing off speculations that the country is likely to default on foreign loans due to an acute scarcity of foreign reserves.
Sri Lanka successfully met its debt obligations by repaying foreign loans, including the payments of the International Sovereign Bonds. Since the beginning of the year both the Central Bank and the Government have been actively pursuing possible avenues to replenish official reserves, with an emphasis on encouraging non-debt flows, so that the existing foreign debt could be managed in a sustainable manner, the bank noted.
These efforts were accelerated in October last year with the announcement of the Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability, which set out envisaged targets for buildup of official reserves in the near term.
However, an Opposition lawmaker said last week that one has to wait and see whether there was a major inflow of dollars as claimed by the Central Bank.
As articulated in the Six-Month Road Map, a number of foreign exchange inflows are envisaged in the very near term. Major foreign exchange inflows to the Central Bank include SWAP facilities with Middle Eastern and other regional Central Banks amounting to about US dollars 2.0 billion.
The Government is also in the process of securing Government to Government financing, syndicated loans as well as loans from multilateral organisations.
Fitch Ratings downgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CC’, from ‘CCC’ reflecting an increased probability of a default event in coming months in light of Sri Lanka’s worsening external liquidity position, underscored by a drop in foreign-exchange reserves set against high external debt payments and limited financing inflows.