Sri Lanka ends 2013 with US$7.2bn in foreign reserves

Feb 12, 2014 (LBO) – Sri Lanka’s foreign reserves rose 4.6 percent to 7,200 million in December 2013 from a year earlier, despite payments to the International Monetary Fund and losses on gold holdings, official data showed. But in pegged exchange rate monetary systems ‘reserves’ are invested abroad such as in liquid US Treasuries and they are also an outflow from the Central Bank and there are no material surpluses or deficits of payments unless physical gold transfers are made.

But central bank or official transactions are considered a ‘below the line’ item in terms of balance of payments accounting conventions, helping keep the concept of ‘balance of payments surplus’ or ‘deficit’ alive.

Foreign reserves are also altered by valuation changes.

Weerasinghe said losses in the Central Bank’s gold portfolio was over 200 million US dollars in 2013. Valuation changes in the foreign reserves however were an ‘above the line item,’ he said.

Sri Lanka’s central bank has made large profits in gold in earlier years.

Last year gold fell 28 percent, the worst loss since 1981, when US Fed chief Paul Volcker tightened US monetary policy bringing inflation and commodity prices down ending the ‘great inflation’ per