Sri Lanka’s central bank has reported a profit of Rs. 274 billion for the year 2024, driven primarily by interest income from its bond portfolio and foreign assets. This positive performance marks a significant recovery as the country’s monetary policies take effect amid the ongoing deflationary climate.
According to the central bank’s annual report, the institution earned Rs. 219 billion from its rupee securities portfolio, a notable decline from Rs. 595 billion in 2023, when the central bank benefitted from higher interest rates on Treasury bills. Despite the reduction, the interest income remained a key factor in driving the overall profit.
Domestic Assets and Policy Impact
From 2019 to 2022, the central bank’s strategy of purchasing over three trillion rupees in bills led to inflationary pressures, contributing to a currency crisis and the eventual sovereign default. However, with monetary stability achieved in September 2022, these bills were restructured into lower-interest, step-down bonds, helping to avoid a broader debt restructuring akin to that of Ghana. This restructuring, however, caused a significant book loss in 2023.
The central bank’s domestic portfolio showed a value of Rs. 1,748 billion by the end of December 2024, down from Rs. 2,044 billion the previous year. This shift occurred alongside the termination of repurchase deals valued at Rs. 333 billion. While the bank clarifies that its portfolio is not an investment strategy, its purchases and sales of government securities are aligned with its core goal: maintaining economic and price stability through monetary policy operations.
Foreign Assets Recovery
The central bank also posted Rs. 68 billion in earnings from foreign reserves in 2024, a stark turnaround from the negative carry in 2023, when it paid Rs. 142 billion in interest but earned only Rs. 86 billion. This reversal was supported by the implementation of deflationary policies, which enabled the bank to build up its foreign assets and reduce expenses, which stood at Rs. 83 billion.
Sri Lanka’s foreign borrowing strategy also played a crucial role in stabilizing the economy. The central bank repaid portions of its loans to India and continued servicing its IMF loans. In rupee terms, the appreciation of the currency in 2023 contributed a 140 billion rupee gain on foreign assets, with further positive movement in 2024.
Central Bank Expenses and Inflationary Pressures
Operating expenses of the central bank, however, saw a notable increase, rising to Rs. 22 billion. This includes a sharp rise in salaries and wages, which grew to Rs. 10.5 billion from Rs. 7.5 billion in the previous year. Pension fund costs also rose to Rs. 4.7 billion, compared to a reversal of Rs. 3.9 billion in 2023. These increased costs are considered inflationary, potentially exerting further pressure on exchange rates.
Despite the higher operating costs, the central bank’s reported profit of Rs. 274 billion reflects a positive shift in Sri Lanka’s economic recovery strategy, driven by a combination of domestic and foreign asset management, as well as strategic debt restructuring.