Government goes to Oman with the begging bowl 

The Sri Lanka government is seeking support from multiple sources including Oman to manage Sri Lanka’s upcoming debt repayments and reiterated commitment to meeting its obligations even as reserves slipped to USD 4.1 billion at the end of March.

The rupee has also been subject to persistent depreciation, caused partly by dollar demand for imports ahead of the festive season, according to analysts, with the LKR reaching the 203.59 mark on Friday (09).

State Minister of Finance Ajith Nivard Cabraal is in Oman with a delegation to discuss potential forex assistance from the Bank of Muscat. Government officials are also engaged in talks with Bangladesh.

The overtures come after Prime Minister Mahinda Rajapaksa visited Bangladesh last month and met with the Governor of Bangladesh Bank, which functions as their Central Bank.

Central Bank Governor Prof. Lakshman on Thursday (08) said they were awaiting confirmation from the China Development Bank (CDB) for a long-delayed loan of about USD 700 million.

The government has been in negotiations with CDB since last year when it approved a USD 500 million loan to prop-up reserves.

Sri Lanka has two large debt repayments in May and July with the former expected to be about USD 720 million and the latter, USD 1 billion.

Recently, the Central Bank entered into a bilateral currency swap arrangement with the People’s Bank of China (PBOC) amounting to CNY 10 billion (equivalent to approximately USD 1.5 billion). But since it’s a local currency swap, it is unlikely to reduce pressure on the rupee, according to experts.  

“Although the rupee experienced some volatility recently, the continuation of the existing restrictions on non-essential imports and certain foreign exchange outflows, among others, is expected to help cushion pressures in the domestic foreign exchange market,” the Central Bank said in its latest monetary policy review.  

The Governor emphasised that the Central Bank's involvement in the currency market has been minimal with its role largely limited to instructing banks.

Gross official reserves were estimated at USD 4.1 billion (excluding the swap facility with the PBOC), with an import cover of three months, at the end of March.