Sri Lanka’s rapidly declining foreign exchange reserves have sparked renewed political and economic controversy, with opposition lawmakers questioning whether the Central Bank has quietly intervened to defend the rupee, while monetary authorities insist the fall reflects soaring import payments rather than currency market intervention.
The debate intensified after official figures showed Sri Lanka’s gross official reserves slipping from US$6.8 billion to US$6.4 billion, moving further away from the US$8.9 billion year-end reserve projection linked to the International Monetary Fund (IMF) programme.
Opposition MP Ravi Karunanayake argued that the decline raises serious concerns about how the reserves are being managed. According to him, the reduction suggests the Central Bank may have been selling US dollars in the foreign exchange market to prevent the rupee from depreciating.
“Reducing reserves to US$6.4 billion indicates that dollars are being sold to protect the rupee,” Karunanayake alleged, warning that sustained intervention could weaken the country’s external financial buffer at a time when reserve accumulation remains a key IMF benchmark.
The allegation places fresh focus on the Central Bank’s exchange rate management strategy, particularly as Sri Lanka continues its recovery from the worst economic crisis in decades.
Central Bank Governor Dr. Nandalal Weerasinghe firmly rejected claims of currency intervention during the latest monetary policy review, maintaining that the reserve decline was driven primarily by exceptionally high import expenditure.
According to the Governor, monthly imports have consistently exceeded US$2 billion, with one month recording nearly US$2.4 billion in outflows. The increase was attributed to higher global petroleum prices, increased imports of vehicles following the relaxation of restrictions, and additional fuel purchases by petroleum suppliers seeking to rebuild strategic buffer stocks.
Weerasinghe also pointed to strong domestic credit growth currently running at approximately 27 percent—which has fueled higher demand for imported goods and consequently increased foreign exchange outflows.
Despite the recent decline, the Governor maintained that Sri Lanka’s reserve position remains on track to improve in the coming months.
He noted that the country has already received the fifth and sixth disbursements under the IMF programme, while further foreign currency inflows are expected from the Asian Development Bank (ADB) and the World Bank.
The Central Bank also stressed that the IMF closely monitors Net International Reserves (NIR) rather than gross reserves alone. Weerasinghe said reserve and NIR targets had been revised for both June and December to reflect prevailing market conditions and that provisional data indicate Sri Lanka has met the revised end-June NIR target.
With imports expected to remain elevated and external financing continuing to arrive, economists say the coming months will reveal whether Sri Lanka can rebuild reserves without resorting to sustained market intervention or placing renewed pressure on the rupee.
By Special Correspondent