Sri Lanka‘s foreign reserves are now under a serious threat of depleting to very low levels with signs of downfall imminent in Foreign Direct Investments (FDI) and foreign funding during the new year in the short and long run, global economic analysts predicted. The ratings of the International Monetary Fund (IMF), World Bank, Moody's, Fitch, Citi, and the latest downgrade by S&P Global cannot be considered as wrong forecasts. They warned that Sri Lanka’s debt burden is reaching an unsustainable level, and that the country’s economy is in a precarious state to recover from the COVID-19 triggered recession.
If the government fails to obtain IMF relief and private sector credit, gross reserves should fall to about USD 3.7 billion by end of 2021 or USD 2.3 billion on a usable basis, Citigroup Global Markets Inc financial analysis report recently revealed.
As of October 2020, the global agency has estimated gross FX reserves of USD 5.86 billion are enough to cover about 55% of total external financing requirements (current account deficit amortizations of medium to long term debt + short-term debt).
If official loans are rolled over and China lends an additional USD 800mn to Sri Lanka, reserves will fall to USD 3.7 billion at the end of 2021.
But assuming new official and China commercial lending would be delayed or fall short amid debt sustainability concerns, FX reserves could fall an average of about USD 365 million per month, the report disclosed.
This means reserves can drop sharply to about USD 3 billion by July without extraordinary new financing by China and larger scale FDI, economic analysts said.
Citigroup Global Markets Inc expressed the belief that Sri Lanka's debt restructuring programme may not happen until 2022.
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