Lanka’s foreign reserves expected to reach USD 4.5 Bn in 2023 end
Reserves are expected to improve towards the end of the year, aided from scheduled inflows from IMF, WB and ADB totalling to +USD 1 billion post signing of the IMF first review.
First Capital Research says that Official foreign reserves remained at similar levels earlier in the year largely due to incremental pressure from imports with the relaxation of the import ban from June 23. Furthermore, continued absorption of USD from the domestic foreign exchange market also caused pressure towards the reserves position.
Commenting on the external debt restructuring discussions report says that it has made tremendous progress since our last update in August 2023. Having received the restructuring terms from China’s EXIM bank and from the Paris Club, negotiations are currently underway with the private creditors whilst the CBSL and the government continue to remain optimistic of the potential board approval of the first review of the EFF in December 2023.
“Going forward currency appreciation is likely to be limited as the government plans to gradually ease import restrictions which could potentially exert a downward pressure on the currency, especially considering the ongoing recovery in GDP growth.”
The exchange rate is expected to marginally depreciate but trade within a range of LKR 320.-360.for December 2023 while the target for June 2024 also remains the same at LKR 320.- 360.
“We could raise our long-term foreign currency sovereign credit rating upon completion of the government’s bond restructuring. The rating would reflect Sri Lanka’s creditworthiness post-restructuring. Our post-restructuring ratings tend to be in the ‘CCC’ or low ‘B’ categories, depending on the sovereign’s new debt structure and capacity to support that debt.”
Having reached an agreement with the official creditor Committee on treatment of USD 5.9 Bn outstanding debt, Sri Lanka has a few other actions to complete prior to receiving the 2 nd tranche for USD 334Mn from the IMF.
“First is to finalize the MoU with the Official Creditor Committee on the agreed-upon debt treatment terms, which will then be implemented through bilateral agreements with each OCC member, in accordance with their laws and regulations. Finalizing similar agreements with Sri Lanka’s remaining official bilateral creditors, including Saudi Arabia, Pakistan, Kuwait and Iran, altogether representing a further USD 274 Mn of outstanding claims.” Lanka’s foreign reserves expected to reach USD 4.5 Bn in 2023 end Reserves are expected to improve towards the end of the year, aided from scheduled inflows from IMF, WB and ADB totalling to +USD 1 billion post signing of the IMF first review.
First Capital Research says that Official foreign reserves remained at similar levels earlier in the year largely due to incremental pressure from imports with the relaxation of the import ban from June 23. Furthermore, continued absorption of USD from the domestic foreign exchange market also caused pressure towards the reserves position.
Commenting on the External debt restructuring discussions report says that it has made tremendous progress since our last update in August 2023. Having received the restructuring terms from China’s EXIM bank and from the Paris Club, negotiations are currently underway with the private creditors whilst the CBSL and the government continue to remain optimistic of the potential board approval of the first review of the EFF in December 2023. Going forward currency appreciation is likely to be limited as the government plans to gradually ease import restrictions which could potentially exert a downward pressure on the currency, especially considering the ongoing recovery in GDP growth.”
The exchange rate is expected to marginally depreciate but trade within a range of LKR 320-360 for December 2023 while the target for June 2024 also remains the same at LKR 320- 360.
“We could raise our long-term foreign currency sovereign credit rating upon completion of the government’s bond restructuring. The rating would reflect Sri Lanka’s creditworthiness post-restructuring. Our post-restructuring ratings tend to be in the ‘CCC’ or low ‘B’ categories, depending on the sovereign’s new debt structure and capacity to support that debt.”
Having reached an agreement with the official creditor Committee on treatment of USD 5.9Bn outstanding debt, Sri Lanka has a few other actions to complete prior to receiving the 2 nd tranche for USD 334 Mn from the IMF.
“First is to finalize the MoU with the Official Creditor Committee on the agreed-upon debt treatment terms, which will then be implemented through bilateral agreements with each OCC member, in accordance with their laws and regulations. Finalizing similar agreements with Sri Lanka’s remaining official bilateral creditors, including Saudi Arabia, Pakistan, Kuwait and Iran, altogether representing a further USD 274 Mn of outstanding claims.”
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