Sri Lanka foreign reserves will fall to uncomfortable levels after the July 2021 repayment of USD 1 billion is repaid but they may still muddle through next year.
Forex reserves were estimated at USD 4.6 billion in February 2021, down from USD 4.8 billion a month earlier, Director of Economic Research, Chandranath Amarasekara said.
“Official reserves were provisionally estimated at USD 4.6 billion by the end of February,” Amarasekara said.
In 2021, the total debt service payment is estimated to be USD 6865 million and USD 1514 million as interest payments.
These details were revealed in a memorandum of financing the Budget 2021 formulated by the Finance Ministry recently.
The interest payments and capital repayment of Foreign Currency Banking Unit loans( FCBUs) and SLDBs are estimated at USD 2664 million.
During the year 2021, it is expected to raise USD 2000 million (LKR 376 billion) through the issuance of SLDBs, Memorandum disclosed.
In addition, USD 1170 million worth of FCBUs raised from the Bank of Ceylon and the Peoples Bank will be matured this year and the Treasury will raise loans to repay it from the same channel.
The government will also be appealing for international investors to roll over bonds maturing this year, a further sign of the island nation's grim financial situation.
The government estimates gross FX reserves of USD 5.86 billion in Oct is enough to cover about 55% of total external financing requirements.
Capital and import controls help slow the pace of reserve decline and the rupee does not look grossly misaligned.
If we assume that short term debt and official loans are rolled over, and China lends an additional USD 800 million to Sri Lanka in 2021, reserves should fall to USD 3.5 billion at the end of 2021 giving the authorities enough wiggle room to muddle through next year.
The Central Bank repaid a USD 400 million swap to the Reserve Bank of India in February 2021.
Deputy Governor Dhammika Nanayakkara said that it had not sold any dollars to defend the rupee during the month.
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