Sri Lanka among most vulnerable economies to strengthening dollar

As appreciating U.S. dollar is testing the resilience of many emerging and frontier markets this year, Sri Lanka stands among the most vulnerable economies for the dollar’s rising phenomenon, as the country’s debt repayments stand materially higher than its foreign reserves, said Moody’s Investors Service.

The U.S dollar has been heading north against many major global currencies and the ride has been pretty steep since mid-april as the world’s largest economy is humming with its lowest unemployment and record corporate profits.

Amid the U.S. Federal Reserve raising interest rates and at least another two hikes are penciled for 2018 – a proof of an improving U.S. economy – investors have been taking out the money from emerging and more fragile frontier markets to invest back in safer U.S securities.

Sri Lanka’s vulnerability comes from its unsustainable level of foreign debt, much higher than its foreign reserve stock, Moody’s pointed out.

By end of May, Sri Lanka’s gross official reserves were about US $ 9.1 billion and since then Sri Lanka raised US $ 1 billion through an 8 – year syndicate loan from China Development Bank and it received US $ 252 million from the International Monetary Fund (IMF). „Lower unemployment, higher corporate profits have strengthened U.S dollar „SL’S vulnerability comes from unsustainable level of foreign debt which is much higher than its foreign reserves „SL’S external debt repayments from 2019 to 2022 estimated at US $ 14.5bn „Government has to repay US $ 4.1bn in foreign debt next year