FINANCIAL CHRONICLE – By the end of July, Sri Lanka’s foreign currency reserves increased by 2.1 percent, reaching US$ 6.59 billion, up from US$ 6.45 billion the previous month, according to official statistics. This growth comes as the Central Bank actively engaged in purchasing dollars to strengthen the reserves.
During July, the Central Bank made substantial dollar acquisitions, netting US$348.6 million. Over the first seven months of 2026, total dollar purchases amounted to US$905 million, following a significant net acquisition of US$2 billion in the prior year.
In May, the Sri Lankan rupee faced considerable downward pressure as the cost of fuel imports surged, exacerbated by tensions in the Middle East and persistent demand for dollars to facilitate new vehicle purchases. In response, the Central Bank elevated its Overnight Policy Rate to combat inflation and address the sharp depreciation of the national currency.
The Central Bank’s proactive dollar buying strategy aims to bolster foreign currency reserves to fulfill commitments made to the International Monetary Fund (IMF) under a US$3 billion external funding arrangement. This initiative is also intended to manage the country’s multilateral and bilateral loan obligations.
This robust reserve accumulation is critical as Sri Lanka prepares to begin repaying foreign debts to sovereign bondholders, with payments set to commence in April 2028.
Following a successful debt restructuring agreement and the establishment of an IMF Extended Fund Facility (EFF) program, the nation has been focused on rebuilding its reserves to achieve essential macroeconomic stability targets. A decline in reserves could hinder compliance with the IMF’s performance metrics, particularly those concerning reserve adequacy and net international reserves.
Maintaining sufficient reserves is vital for meeting upcoming external financial commitments without resorting to new loans or incurring arrears. Although Sri Lanka has made considerable strides in restructuring both bilateral and commercial debts, any prolonged decrease in reserves could jeopardize the country’s recovery efforts and its ability to fully reestablish relations with international financial markets.
