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Promised update on CBSL Road Map postponed

29 Dec 2021

  • Cabraal promises an update before year-end
  • Road Map targets $ 11.4 b inflow between Oct. and Dec.
BY Shenal Fernando The Central Bank of Sri Lanka (CBSL) will not be conducting a press conference updating the public on the current status of the proposed foreign exchange inflows set out in the CBSL Six-Month Road Map before the end of the month, as previously promised, The Morning Business learns. Speaking to us yesterday (28), a highly placed source in the CBSL, who wished to remain anonymous, stated that as of yet, there are no plans to conduct a presser to provide an update on the current status of the inflows promised under the CBSL Six-Month Road Map. This development comes at a time when the public and the business sector have increasing called on the Government and the CBSL to disclose how they will address the prevailing economic situation of the country, where foreign exchange liquidity has become a major issue as a consequence of Sri Lanka’s foreign reserves falling to $ 1.6 billion by end-November, and whether the forex inflows figures expected during the period from October to December under the Six-Month Road Map will be achieved. In its Six-Month Road Map, the CBSL had disclosed that it would be receiving $ 11.45 billion in forex inflows over the period from October to December. From the above-targeted foreign inflows, the Government of Sri Lanka and the CBSL will negotiate for $ 3.9 billion. Of the remainder, $ 6.95 billion includes forex inflows to the domestic forex market with contributions mainly from merchandise exports ($ 3.3 billion), worker remittance ($ 1.8 billion), and service exports ($ 1 billion). Despite these forex inflows targets set by the CBSL Road Map, the country’s foreign reserves fell to a 12-year low in November 2021. However, CBSL Governor Ajith Nivard Cabraal has continuously reiterated that he is confident of meeting the targets set out in the Road Map and has promised that the foreign reserves of the country will be strengthened to $ 3 billion by 31 December 2021. Securing the promised forex inflows under the Road Map and the subsequent strengthening of Sri Lanka’s foreign reserves is essential in the near term, as predetermined outflows during December and January for the repayment of short-term funds, foreign currency-denominated loans, and their interest payments exceed $ 1.4 billion. However, international rating agency Fitch Ratings, in its rating action commentary published on 17 December, stated that it believed it will be difficult for the Government of Sri Lanka to meet its external debt obligations in 2022 and 2023 in the absence of new external financing sources. “Obligations include two international sovereign bonds of $ 500 million due in January 2022 and $ 1 billion due in July 2022. The Government also faces foreign currency debt service payments, including principal and interest, of $ 6.9 billion in 2022, equivalent to nearly 430% of official gross international reserves as of November 2021. Cumulative foreign currency debt service, including interest and principal, amounts to about $ 26 billion from 2022 through to 2026,” Fitch stated. “Sri Lanka’s foreign exchange reserves have declined much faster than we expected at our last review, owing to a combination of a higher import bill and foreign currency intervention by the Central Bank of Sri Lanka. Foreign exchange reserves have declined by about $ 2 billion since August, falling to $ 1.6 billion at the end of November, equivalent to less than one month of current external payments (CXP). This represents a drop in foreign currency reserves of about $ 4 billion since end 2020,” the rating agency added. Fitch has downgraded Sri Lanka’s Long-Term Foreign Currency Issuer Default Rating (IDR) to “CC” from “CCC”. Fitch typically does not assign outlooks or apply modifiers for sovereigns with a rating of “CCC” or below.


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