Sri Lanka increases its foreign exchange reserves thanks to the lifting of the Chinese swap

Colombo, Dec.29 (Reuters) – Sri Lanka raised its official foreign exchange reserves to around $ 3.1 billion, thanks to a currency swap deal with China, sources said on Wednesday, as the country Southeast Asia seeks to consolidate its struggling finances and credit. odds.

The country’s central bank governor Ajith Nivard Cabraal said in a tweet on Wednesday that reserves stood at around $ 3.1 billion and would remain at that level until the end of the year.

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People familiar with the matter said Reuters reserves were replenished after a $ 1.5 billion currency swap with the People’s Bank of China was finalized on Wednesday.

The central bank confirmed the foreign support but did not specifically refer to the Chinese swap deal. Cabraal has already spoken about the exchange with the PBOC.

“Foreign currency inflows under several other facilities currently under negotiation are expected to be completed in early January 2022,” Sri Lanka’s central bank said in a statement.

“The government and the central bank are convinced that the reserve position will remain at comfortable levels throughout 2022,” he added.

One of the sources said the swap was denominated in yuan but could be converted to dollars if necessary.

Sri Lanka is due to repay around $ 4.5 billion in debt in 2022, starting with a $ 500 million international sovereign bond maturing on January 18.

The country has sought to increase its reserves through various means, including bilateral trade and loans from other governments and central banks, increasing remittances, limiting imports, among others.

China is Sri Lanka’s largest source of import revenue and a key financier having loaned over $ 5 billion for various infrastructure projects including ports, highways and a coal-fired power plant during the last decade.

On December 18, Fitch Ratings downgraded Sri Lanka’s sovereign rating to ‘CC’ instead of ‘CCC’, citing a growing risk of default in 2022, despite assurances from the central bank that action would be taken to do so. facing all refunds.

Sri Lanka also said that “unwarranted and questionable rating actions” by some rating agencies have caused “unnecessary” losses in the secondary market and unwarranted delays in expected foreign currency inflows.

“Inclusion of the swap in reserves might not change investor sentiment much as it has already been taken into consideration. What Sri Lanka needs are further inflows of funds,” said Lalinda Sugathadasa, head of research at ICRA Lanka.

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