Sri Lanka’s balance of payments (BOP) is estimated to have recorded an overall deficit of $ 2.32 billion during the first three quarters of 2015 compared with a surplus of USD 2 billion recorded a year earlier. Deterioration in the overall BOP has come from loan repayments and higher imports.
The International Monetary Fund (IMF) last week warned of an uncertain economic outlook, loose monetary and fiscal policies and urged appropriate actions to safeguard economic stability.
“We expect to extend the $1.5 billion Indian swap by one year,” Finance Minister Ravi Karunanayake told Reuters.
India’s Central Bank entered into the swap agreement with its Sri Lanka counterpart in March last year. Sri Lanka received $400 million in April and $ 1.1 billion in September.
Karunanayake told parliament on Thursday that the island nation’s reserves were at “a healthy” $ 6.1 billion. The Central Bank data showed the reserves have fallen over a quarter from $8.2 billion by end of last year mainly due to debt repayment.
The country’s foreign currency reserves are under pressure as $4.75 billion is expected to be repaid on foreign loans before November 2016, Central Bank data showed.
Karunanayake also said there had been $ 750 million of inflows since the budget was announced on 20 November mainly from remittances. The government has decided to borrow $350 million from Turkey Exim Bank funds for development projects.
Analysts said higher imports, foreign borrowing due to low interest rates and defending the currency had depleted reserves. The Central Bank sold a net $ 1.1 billion in the three months through November.
Officials at the Central Bank, however, said dollar selling was to facilitate oil imports and foreign outflows from government securities.
Apart from the RBI swap, Sri Lanka has borrowed $ 2.15 billion through two 10-year sovereign bonds and more than $ 1.7 billion from development bonds this year.