IMF has shown the way and now Sri Lanka has to dig itself out of the mess, says Governor
by Sanath Nanayakkare
Central Bank Governor Dr. Nandalal Weerasinghe recently said that Sri Lanka needs to build and keep a ‘comfortable level’ of currency reserves in order to maintain the country’s balance-of-payments situation in the event of any external shocks or unforeseeable emergencies.
The Governor made this comment during an interview with Sri Lanka Rupavahini Corporation’s Big Question’ programme.
“Foreign debt restructuring will be a key pillar in this exercise. Sri Lanka’s foreign loan repayments currently stand at USD 6 billion per year. If a part of these debt repayments can be restructured, that will give the country more space to secure the funds it needs to repay its loans and pay for its essential imports going forward. Say, for example, if it can be restructured to pay USD 2 billion per year, then the balance USD 4 billion will remain in our reserves. Thus we should be able to gradually increase our reserves within 3-4 years to build it up to USD 8-10 billion. If this could be achieved, it would be a relatively strong position because in case of an oil price shock or any other unforeseeable emergency, we would have enough reserves to face it. This is why bringing the currency reserves to a comfortable and safe level while repaying our foreign debt is important,” he said.
“The depletion of currency reserves was the main cause for going into the crisis last year. When I was appointed Governor of the Central Bank in April 2022, there was only USD 20 million usable reserves. Once we paid our loans, there was no money left in hand to import essential commodities. Those days we had to depend on daily inflows to tide us over. That’s not a good situation. For the economy to stabilize, we need to increase our reserves up to at least USD 8 billion,” he said.
According to the Governor, country’s currency reserves would reach close to USD 3 billion at the end of this month with the Chinese SWAP of USD 1.6 billion.
However, the Governor emphasized that there are two main pillars the country must prioritize in building foreign reserves before looking at foreign debt restructuring.
“We have to increase our export earnings by diversifying our exports and increase our expatriate workers’ remittances. Keeping our imports at a manageable level as against our exports is another key element. Thirdly, working proactively to increase our tourism earnings would help increase our reserves. These should be our prime targets. Yes, then as you mentioned, if we receive a loan from the IMF, the World Bank or the Asian Development Bank, that will also help boost our reserves. It’s important to methodically reduce the import expenditure and increase export earnings, then the surplus would add to our reserves.
When asked whether the IMF would really dig Sri Lanka out of the mess, the Governor said,” What is the need for IMF to dig Sri Lanka out of the mess? It’s not a problem of the IMF. The government now has to keep its pledges on fiscal discipline and fiscal consolidation and move ahead in the right direction with consistency, without veering away from the agreed upon benchmarks for political reasons. India, Korea, Thailand and Indonesia also went to IMF post- Asian financial crisis. They didn’t go to IMF again because they implemented the programmes and there was no need to go again. IMF gives its members’ money and that is why it took a long for them to give us money as our debt was unsustainable. They help member countries facing balance of payment issues with members’ funds and show them the way to stabilize themselves. So it is up to us to dig ourselves out of the mess,” the Governor said.
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