• Central Bank targets sufficient reserves to cover 12-month debt obligations
• Inflows from tourism, remittances, and exports expected to boost reserves

Sri Lanka is building its foreign reserves to cover its debt obligations of $ 5 billion for the next 12 months, as foreign inflows in 2025 will create a healthy liquidity in the domestic foreign exchange market, Central Bank Governor Dr. Nandalal Weerasinghe said.

In an interview with Central Banking, he said that import coverage is a traditional measurement of foreign reserves in a country while another measurement is represented by the country’s needs over the next 12 months that could be served by central bank reserves.

“In my personal view, if we have 100% of service obligations over the next 12 months, it’s a very comfortable situation. For example, our obligation is $ 5 billion for the next 12 months. If we had $ 10 billion, sufficient cover for the next two years, we would have sufficient cover,” he told Central Banking.

He added that the $ 10 billion reserves is completely sufficient, as Sri Lanka has a flexible exchange rate rather than a fixed exchange rate that might require more reserves, although the International Monetary Fund (IMF) is more at $ 13.5 billion by the end of the programme.

“We expect the maximum amount in foreign exchange payments to be $ 4–5 billion because, under the IMF deal, there is a limit of foreign exchange reserve payments of 4.5% of GDP. So, we have 100% coverage of short-term liabilities,” Weerasinghe said.

Moreover, he said that the Central Bank will continue to build its reserves in 2025, achieving the IMF target, with the increased inflows to the country in terms of workers’ remittances, recovery in tourism and strong export performance.

He noted that the domestic foreign exchange market is expected to continue to experience healthy levels of liquidity, enabling the Central Bank to build up reserves through purchases from the market.