As of July 2024, Sri Lanka’s central bank continues to face a challenging financial situation, with net foreign reserves remaining in the negative at US$728 million. This represents a significant improvement from mid-2022, when net foreign assets were deeply negative at US$4.6 billion.
The drastic decline in reserves in 2022 was driven by borrowing through swaps and arrears to the Asian Clearing Union via the Reserve Bank of India. Since then, the central bank has implemented a deflationary policy, sold domestic securities to banks, and built up reserves to counteract private credit growth.
These reserves have been utilized to settle swaps with Bangladesh, repay loans from the International Monetary Fund (IMF) taken during previous currency crises, and manage debts to the Reserve Bank of India from late 2023.