NOT SO COMFORTABLE RESERVE POSITION

Although the government appears to be quite content with its existing external reserves cover in relation to months of imports, Dr. Coomaraswamy said it was not the best index to measure the adequacy, particularly when the country is exposed to international capital markets.

He said, based on the External Vulnerability Index (EVI) which is much more suitable approach to gauge the reserves position, demon- strated that Sri Lanka had exceeded her comfort zone and is approaching the danger zone.

“Often it is said that our reserves cover over 5 months of imports. But it is not the best index in my view,” he said.

EVI is a ratio between the liabilities of a country over the next twelve months vis-à-vis its gross reserves while the comfort level of EVI stands at 100 percent.

Kumaratunga who is also the Chair of SAPRI.

“Our ratio is 125 percent. Certainly it’s not a crisis situation. But again an amber light flashing,” he emphasized.

Dr. Coomaraswamy’s remarks echoed the view held by the IMF Staff mission last February where they said, “…international reserves are relatively low by most metrics, and encouraged strengthening the reserve position as circumstances permit”.

Nevertheless the Central Bank appears to be comfortable with t he current level of reserves as Central Bank Governor Ajith Nivard Cabraal said, “I think we have got t he right balance. Not too much, not too little. We will be looking at it carefully and moving on we will ensure that Goldilocks is comfortable”.

By t he end of April 2013, gross official reserves were equivalent to 4.4 months, while total reserves were equivalent to 5.3 months of imports.