Sri Lanka’s foreign reserves increase to US$ 4.5 billion
Sri Lanka’s foreign reserves have reportedly increased to US$ 4.5 billion in April 2021 supported by the US$ 500 million loan from the China Development Bank improving reserves from US$ 4.1 billion in March 2021 (lowest since Aug 2009).
Depleting foreign reserve position, high foreign currency debt repayment (US$ 4 billion outstanding debt payment from Apr-Dec 2021) requirement and limited funding sources available in the market are expected to further increase pressure on yields in 2H-2021, the Daily News has reported.
However, due to the continuous under-subscription of bill and bond auctions, the budget deficit was financed mainly via quantitative easing leading to a sharp rise in CBSL Holdings (Rs. 884 billion as at May 6, 2021) which creates aggregate money supply and high liquidity, the news report has stated.
According to the report, considering the surge in market liquidity, rate pressure may subside in the short term, but brace for bond tantrums in 2H-2021.
The inflation rate in April had marginally dipped to 3.9% driven by decrease of prices in the food category, the report has added.
OSL take:
The increase in Sri Lanka’s foreign reserves albeit being gradual is indicative of the country’s economy returning to normalcy after facing the impact of the global Covid 19 pandemic. Sri Lanka is fast becoming a business hub in the South Asian region given it’s geographical positioning in the Indian ocean and the many trade agreements as well as trade concessions enjoyed by the country. Sri Lanka also figures prominently in China’s belt and road initiative (BRI). All these have further expanded business/investment opportunities in Sri Lanka.
| Article Code : | VBS/AT/20210517/Z_2 |