Sri Lanka foreign reserves fall 6.2-pct in June 2026

ECONOMYNEXT – Sri Lanka’s foreign reserves fell 6.2 percent to US$ 6,450 million by end June 2026, from 6,873 million dollars a month earlier amid central bank purchasing US$70.5 million on a net basis in the last month. The Central Bank has been aggressively buying dollars to boost the reserves last year, but it was not able to purchase as much as it wants amid dollar sales in May with sharp depreciation of the rupee currency. The Central Bank has net bought US$556.4 million in the first half of 2026 following a net purchase of US$2 billion last year. The rupee was under high downward pressure in May as the imports bill for fuel went up unusually following the Middle Eastern escalation amid continued demand for dollars to buy new vehicles. The Central Bank in May raised its Overnight Policy Rate amid heavy depreciation of the currency. The Central Bank has been buying dollars aggressively from the market to boost the foreign currency reserves to meet the targets the country agreed with the IMF under the US$3 billion external fund facility and to relay the island nation’s multilateral and bilateral loans. The Central Bank’s aggressive reserve building comes ahead of the repayment of foreign debts to sovereign bond holders. This repayment is scheduled to start from April 2028. The decline in Sri Lanka’s foreign currency reserves in June 2026 signals renewed pressure on the country’s external financial position, even as it continues its post-2022 economic recovery. After successfully exiting sovereign default through a debt restructuring agreement and securing an IMF Extended Fund Facility (EFF) programme, Sri Lanka has been rebuilding its reserves to meet key targets for macroeconomic stability. A drop in reserves could complicate compliance with IMF performance criteria, particularly those related to reserve adequacy and net international reserves. This might delay the disbursement of subsequent tranches of IMF funding, which are critical for maintaining confidence among creditors and supporting the balance of payments. On the debt repayment front, adequate reserves are essential to meet upcoming external obligations without resorting to new borrowing or accumulating arrears. While Sri Lanka has made significant progress in restructuring bilateral and commercial debts, any sustained erosion of reserves raises concerns about its ability to sustain the recovery trajectory and fully normalize relations with international markets. Analysts say policymakers will likely need to focus on boosting export earnings, attracting foreign investment, and prudent fiscal management to reverse the decline and safeguard the hard-won gains from the IMF-supported programme. (Colombo/July 11/2026)