Sri Lanka forex reserves US$7.1bn by July 2012

Aug 25, 2012 (LBO) – Sri Lanka’s foreign reserves had risen to 7.1 billion US dollars by end July 2012 from 6,045 million US dollars in June, helped by a loan from the International Monetary Fund and other inflows, the Central Bank said. When remittances, tourism receipts and foreign borrowings are spent by those that receive then a trade deficit is created as services and capital account inflows are greater than inflows through the goods account (merchandise exports).

In the first six months of the year Sri Lanka has recorded a trade deficit of 4.7 billion US dollars.

Last year’s trade deficit was also worsened by nearly 200 billion rupees of printed money poured into the economy to sterilized foreign exchange sales by the central bank triggering a one off unsustainable ‘stimulus’ of imports.

Sri Lanka received 414 million US dollars as final tranche under a 2.5 billion US dollar loan, which goes directly into the country’s foreign reserves by passing the domestic monetary system.

The state also sold a billion US dollar sovereign bond of which about 500 million US dollars have to be retained to repay an earlier loan maturing in September.

A part of the rest was purchased by the Central Bank for rupees, which when used by the domestic monetary results in the eventual loss of the foreign reserves, unless the monetary authority is prepared to accept further weaknesses in the currency peg.

The central bank said earnings from tourism grew 24.3 percent to 460 million US dollars, worker’s remittances grew 12.1 percent to 17,4 percent to 2.94 billion US dollars.

Foreign direct investments were estimated at 452 million US dollars in the first six months and portfolio inflows were 187 million US dollars.

Foreigners had also bought 842 million US dollars of government securities while capital inflows to the state, was 1,084 million US dollars.