Financial Times

Lanka’s forex reserves surge

Sri Lanka’s foreign reserves, which got a tremendous boost from the IMF on Friday, is seen reaching over $4 billion in the next few weeks, Central Bank (CB) officials said. On Friday, the CB said gross official reserves had reached $3.9 billion following a new SDR allocation by the International Monetary Fund (IMF).

In a statement, the CB said on August 7, in response to the call by the G-20 Heads of State and the IMF’s International Monetary and Financial Committee, the Board of Governors of the IMF approved a general allocation of SDRs equivalent to $250 billion among all the member countries based on their quota with the IMF, to be made on August 28, 2009.

Through this general allocation, Sri Lanka’s official reserve position was boosted by about SDRs 307 million (approximately $475 million). CB Governor Ajith Nivard Cabraal said this is like a grant, “we don’t have to repay this money.” He said that foreign reserves in recent times have been boosted by the earlier IMF tranche of $322 million, some $800 million from a hedge fund and the balance from dollars the CB purchased in the money markets.

Mr Cabraal said this position is also after the regular, scheduled debt repayments. He said by October the reserves should reach over $4 billion adding that so far the CB has met all the targets set in the agreement with the IMF.

Another IMF tranche (over $300 million) is due next month with the IMF reviewing CB figures as at July 31. “As of this date we have met all the technical targets,” the Governor said, “it is a matter of the assessment which we are sure will be okay.”

Dr. P.N. Weerasinghe, Assistant Governor in-charge of Economic and Price Stability, asked by the Sunday Times FT where the CB invest its funds (overseas), said this is confidential. “Where we invest is not even revealed to the IMF,” he said.

Responding to claims that the CB is not getting a good return on its investments, Mr Cabraal said, “We are not like the hedge funds …our philosophy in investment is firstly safety and then the return.” He said the policy has been laid down by the Monetary Board in which weightage is more towards safety than reward. “This is the price we pay for being safe. But yet we have made good returns.” The CB hopes to close bids on the bond issue of $500 million next week with offers invited from 12 top investment banks.

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