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CBSL targets over $ 9 b inflows in next 6 months

04 Oct 2021

 
  • $ 3.9 billion Oct. to Dec.; rest Jan. to Mar.
  • Includes swaps and inflows from G2G inflows
  • Fails to specify lenders
  • No clear indication of IMF 
  • 4-month import cover expected by March
  BY Shenal Fernando Sri Lanka is targeting $ 9.3 billion foreign exchange inflows over the six-month period from October 2021 to March 2022 according to the “Six-Month Road Map For Ensuring Macroeconomic and Financial System Stability” issued by Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal, last Friday (1). From the above-targeted foreign inflows, $ 3.90 billion is expected to be remitted to the country during the three-month period from October to December 2021, with the Government of Sri Lanka expecting to negotiate $ 2.85 billion out of it while CBSL will negotiate the rest – $ 1.05 billion. Similarly, over the period from January to March 2022, the targeted foreign exchange inflows stand at $ 5.35 billion, with the GoSL expecting to negotiate for $ 4.40 billion and the CBSL for $ 0.95 billion. However, the Six-Month Road Map issued by the CBSL fails to set out any particulars as to the exact sources of such targeted foreign inflows. Moreover, the targeted foreign exchange inflows over the next six months by the CBSL do not make any reference to forex inflows from the International Monetary Fund (IMF), possibly indicating that the CBSL doesn’t expect Sri Lanka to enter into an IMF programme during the next six months. However, it should be noted that the summary timeline of targeted fresh forex inflows set out by the CBSL provides for forex inflows of $ 700 million from multilateral loans. The Road Map further provides that the targeted forex inflows into the local forex market over the six-month period from October 2021 to March 2022 is estimated at $ 16.1 billion with contributions mainly from merchandise exports ($ 6.9 billion) and worker remittances ($ 3.8 billion). This Road Map is the first plan of Cabraal’s three-pronged framework strategy to strengthen the economy, which also includes a one-year horizon from January-December 2022 and another medium to long-term horizon. The Road Map mainly focuses on four main points, which are efforts for macroeconomic and financial system stability, near-term measures to ensure continued timely debt servicing, increase forex liquidity in the market, and create a framework for all enterprises to recover from the pandemic. Briefing the Road Map, Cabraal added that the CBSL will take immediate steps to ensure the stability of the external sector by closely focusing on the near-term horizon, which is the next six-month period. “The rationale for this short-term focus is that, given the forex challenge and the debt service concerns, the proper management of this period will result in clarity and certainty being restored, which will enable the economy to rebound,” he explained. Therefore, these targeted foreign exchange inflows are part of the CBSL’s strategy to increase the gross official reserves of the country to a level adequate to cover a minimum of four months of imports by March 2022. Such strengthening of the country’s gross official reserves will be vital in meeting its foreign debt service payments, with over $ 6.9 billion in foreign debt due to be repaid over the next 12 months. Commenting on the prevailing narrative put forward by international rating agencies and eminent economists that Sri Lanka will likely default on its foreign debt obligations or have to go for a default, Cabraal stated that at the end of 2019, Sri Lanka had reserves of $ 7.6 billion. Thereafter, notwithstanding what people are saying, Sri Lanka had paid back $ 6 billion in 2020, and in 2021 had paid a further $ 5.6 billion so far. “Now the reserves are around $ 5 billion, which consists of about $ 3.5 billion in cash and a soft arrangement we have for another $ 1.5 billion. So technically, it would not have been possible if you are looking only at the reserves and saying ‘look, we are unable today’. Reserve management is not only dealing with the reserves we have, but dealing with the inflows as well. Criticisms that Sri Lanka will default are misplaced and we have already shown in the last two years that we can settle the debts,” Cabraal noted.  


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