April official foreign reserves at US$ 1.8bn; usable reserves at paltry US$ 50mn

Sri Lanka’s official foreign reserve assets stood at US$ 1,827 million by the end April, slightly changed from US$ 1,917 million that stood at the end of March. But the usable reserve position has fallen to a frighteningly low level of US$ 50 million, which is not sufficient to import even a day’s goods.

According to the official data published by the Central Bank, foreign currency reserves, which form part of total official reserve assets, were at US$1,618 million by the month end, and consisted of US$ 1.5 billion equivalent of Yuan denominated swap line from the People’s Bank of China entered into with in March 2021.

However, its usability “is subject to conditionalities,” the Central Bank said.

Hence, the headline official reserves figure for months concealed the true nature since last December when the Central Bank finally took the Yuan swap as part of the reserves after keeping it aside as a stand-by facility.

Finance Minister Ali Sabry last week rang alarm bells over the extreme precarious nature of the country’s external sector in a speech made in the parliament where he disclosed that the true usable reserves were at US$ 50 million levels.

He said unless the economic crisis isn’t addressed with utmost priority, Sri Lanka would completely run out of imported goods as currently the imports of essentials such as fuel, medicine and food are purchased from the Indian credit line, which is soon coming to an end.

When queried repeatedly of the Chinese swap line’s usability for imports last year, the former Central Bank Governor Ajith Nivard Cabraal never responded directly and instead dodged such questions saying that Yuan is a reserve currency.

Many point fingers at Cabraal, among others who are directly responsible for the current economic crisis as he gave false promises over billions of dollars worth of inflows in a six-month road map unveiled in October last year and for constantly lying over the brewing crisis leading up to the hard landing of the economy in March.

It was transpired lately that Cabraal was the single member of the Monetary Board who decided on a full float of the currency on March 7 when the consensus decision was to devalue, initially up to Rs.215 to a dollar before collectively deciding to fix the rupee at Rs.230 to dollar. That botched rupee float resulted in a free fall of the rupee and resulted in runaway prices, where the prices of everyday commodities are soaring with official food inflation flirting near 50 percent in April over a year ago.