Screenshot_20230408-090401_Gmail(Bloomberg) – Sri Lanka’s foreign exchange reserves grew in March to the highest in over a year after the South Asian nation clinched a $3 billion International Monetary Fund bailout.

The stockpile increased to $2.69 billion from $2.22 billion in February, according to data released by the central bank on its website. The reserves include a swap facility from the People’s Bank of China equivalent to about $1.4 billion, which helped lift reserves to a previous high of $3.14 billion in December 2021, even though it has conditions on usability.

On March 20, the IMF board approved the 48-month loan program and subsequently disbursed about $333 million as a first tranche, which helped to stabilize Sri Lanka’s economy and let the nation begin restructuring its debt. The endorsement by the Washington-based lender is expected to unlock more funding and provide a reform framework to enable the island nation to recover from its worst economic crisis in decades.

Improving investor sentiment has also boosted the local currency, while rising worker remittances and tourism has helped ease balance-of-payments constraints after the nation last year ran out of dollars to pay for essentials, including food, fuel and medicines.

Sri Lanka last month took a key step toward winning the cooperation of its external bondholders for restructuring $84 billion in debt by agreeing to include local-currency bonds in the program. The exercise, which will include the shorter-term Treasury bills held by the nation’s central bank as well as some longer-term Treasury bonds, is intended to reduce the burden on foreign commercial creditors by providing the concessions needed for Sri Lanka to achieve debt sustainability.

-With assistance from Asantha Sirimanne


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