CBSL expects reserves to remain around USD 3.5bn by end 2021; USD 4bn on average in 2022

Sri Lanka’s Central Bank expects gross official reserves to remain at around USD 3.5 bn at the end of 2021, and around USD 4.0 bn on average in 2022.

Releasing the ‘Recent Economic Developments’ report, the Central Bank said that it expects financial flows to strengthen in the period ahead with the envisaged inflows in the form of international swap arrangements, foreign currency term loans, project loans to the Government, and monetising of non strategic assets.

“Further, several FDI projects are currently in the pipeline and are being expedited,” the Central Bank highlighted.

“The expected improvements in the BOP would bolster foreign assets of the country while improving gross official reserves and strengthening exchange rate stability in the period ahead.”

The Central Bank’s contribution to net domestic financing rose to 45.6% in the seven months ending July 2021, compared to 17.5% in the same period last year.

The central government debt, which stood at Rs. 15,117.2 bn at end 2020, increased to Rs. 16,751.7 bn at the end of July 2021.

By the end of July 2021, the relative share of outstanding foreign debt of the Central Government decreased to 38.4% of total central government debt, compared to 40.0% at the end of 2020.

Meanwhile, inflation is projected to remain high at around 8-9% in the next few months, before gradually reverting to the desired 4-6% level thereafter.

Workers’ remittances are expected to improve from the levels observed in August and September 2021, as the departures for foreign employment are expected to rise with improving global travel and firming demand for labour as global activity normalises.

In 2021, the economy is expected to grow by about 5.0%, which is a downward revision over the initial projection of 6.0%,

Economic growth is expected to rebound and steadily progress above 5.0% in the medium term, the Central Bank further said.