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IMF has pointed the way, now Sri Lanka must get out of the woods, says Governor
by Sanath Nanayakkare
Central Bank Governor Dr Nandaral Velasinghe recently said that Sri Lanka needs to build up and maintain a “comfort level” of currency reserves to maintain the country’s balance of payments in the event of any external shock or unforeseen emergency .
The Governor made the comments during an interview with Sri Lanka’s Rupavahini Corporation’s Big Questions programme.
“External debt restructuring will be a key pillar of this effort. Sri Lanka currently repays $6 billion in foreign loans annually. If some of these debt repayments could be restructured, that would give the country more room to secure loan repayments and future basic payments. The funds needed for imports. Say, if it can be restructured to pay $2 billion a year, the balance of $4 billion will stay in our reserves. So we should be able to gradually increase our reserves over 3-4 years, Make it $800-100 billion. If we can do that, it will be a relatively strong position because we will have enough reserves in case there is an oil price shock or any other unforeseen contingency. This That’s why it’s important to keep currency reserves at a comfortable and safe level while servicing external debt,” he said.
“The depletion of currency reserves was the main reason for last year’s crisis. When I became governor of the central bank in April 2022, there were only $20 million in available reserves. Once we paid off our loans, there was no money on hand to import necessities. In those days, we had to Not relying on daily inflows to tide us over. This is not a good situation. For economic stability, we need to increase reserves to at least $8 billion,” he said.
According to the governor, the country’s foreign exchange reserves will be close to $3 billion by the end of this month, while China’s SWAP stands at $1.6 billion.
However, the Governor stressed that the country must prioritize the two main pillars of building foreign exchange reserves before considering external debt restructuring.
“We have to increase export earnings by diversifying our exports and increasing remittances from foreign workers. Keeping our imports and exports at a manageable level is another key factor. The third is to actively increase tourism income, which is good for increasing reserves. These should be Our main objective. Yes, then as you mentioned, if we get a loan from IMF, World Bank or Asian Development Bank, it will also help to increase our reserves. The important thing is to reduce imports methodically Spend and increase export revenue, then the surplus will add to our reserves.
Asked if the IMF would actually dig Sri Lanka out of the mess, the Governor said, “Why is there any need for the IMF to dig Sri Lanka out of the mess?” That’s not the IMF’s problem. The government must now stick to its commitment to fiscal discipline and consolidation and consistently move in the right direction, rather than deviate from agreed benchmarks for political reasons. After the Asian financial crisis, India, South Korea, Thailand and Indonesia also joined the IMF. They didn’t go to the IMF anymore because they implemented the project and there was no need to go again. The IMF provides money from its member countries, which is why it took them so long to give us money because our debt is unsustainable. They help member states facing balance of payments problems with member state funds and show them how to stabilize themselves. So it’s our duty to get out of the way,” the governor said.
