CB lowers year-end forex reserve target to US $9bn

The Central Bank has lowered its year-end forex reserve target to US $9 billion from the earlier revised target of US $ 9.5 billion, Central Bank Governor Indrajit Coomaraswamy said last Friday.

Sri Lanka’s forex reserves stood at US $ 8.4 billion by the end of July, and US $1.5 billion is expected to come from a syndicated loan from China Development Bank (CDB), the next IMF tranche and a Panda bond issuance.

“We think we will finish the year with US $9 billion gross foreign reserves. That’s a comfortable number, and is five months import cover,” Dr. Coomaraswamy said.

Meanwhile, the Governor acknowledged that Sri Lanka has missed the June net forex reserve target set by the IMF. He revealed that a waiver from the IMF performance criteria would be sought.

“When the target was set last year, the world was in a very different place. As you know, last year there were large inflows, hence, we were able to purchase on a net basis of US$ 1.6-1.7 billion, and in fact we purchased US $500 million in the first three months of the year.

“Then there was a significant turn, in terms of capital flows to emerging markets. So in that context, the target became unrealistic,” he said.

The Governor noted that a US $ 1 billion syndicated loan at 5.35 percent interest from CDB will be received in two tranches—first tranche of US $ 500 in mid-august and the next tranche of US $ 500 million in October.

He also expressed confidence that Sri Lanka will receive the next IMF tranche of US $ 250 this year.

According to the latest IMF staff report, Sri Lanka was originally targeting to increase net official international reserves by US $1.771 billion in 2018, bringing the end- 2018 gross international reserves to US $9.3 billion.