March 2024 Sees Historic Surge: Gross Official Reserves Hit USD 5 Billion Milestone
In a monumental turn of events, the Gross Official Reserves (GOR) have scaled to an unprecedented USD 5.0 billion mark by the close of March 2024, marking a significant milestone after years of stagnation. This remarkable feat was propelled by a boost from the swap facility extended by the People’s Bank of China (PBOC), amounting to approximately USD 1.5 billion, albeit with conditions on its utilization.
The surge in GOR was chiefly fueled by substantial net acquisitions of foreign exchange from the domestic foreign exchange market orchestrated by the Central Bank. March 2024 witnessed a net intervention of USD 715 million (based on trade date), with the first quarter of 2024 raking in net purchases totaling USD 1.2 billion.
Import coverage of GOR, inclusive of the PBOC swap, has consistently remained above 3 months of imports since December 2023, showcasing a robust financial buffer. Despite some volatility, the Sri Lanka rupee has sustained its upward trajectory, appreciating by 9.1% against the US dollar until April 30, 2024. Notably, this appreciation extends across other major currencies like the euro, pound sterling, Japanese yen, Indian rupee, and Australian dollar over the same period.
In trade dynamics, the merchandise trade deficit narrowed to USD 369 million in March 2024 from USD 412 million in March 2023, driven by a more pronounced uptick in exports compared to imports. However, the deficit widened from February 2024 (USD 319 million), and the cumulative deficit for January to March 2024 surpassed that of the corresponding period in 2023, standing at USD 1,229 million compared to USD 896 million.
March 2024 recorded a robust 9.8% surge in earnings from merchandise exports, totaling USD 1,139 million, driven by growth across all major export categories, notably industrial exports. Conversely, expenditure on merchandise imports rose by 4.0% to USD 1,508 million, with intermediate goods, particularly fuel imports, registering the most substantial increase.
In conclusion, March 2024 marks a pivotal moment in Sri Lanka's economic landscape, with the Gross Official Reserves (GOR) surging to an unprecedented USD 5 billion milestone, buoyed by robust foreign exchange acquisitions and support from the People’s Bank of China (PBOC). The sustained appreciation of the Sri Lanka rupee against major currencies reflects a stable currency market amidst global volatility. While trade dynamics witnessed a narrowing merchandise trade deficit driven by strong export performance, challenges persist with a widening cumulative deficit. However, the resilience showcased in export earnings across key sectors underscores the nation's potential for sustained economic growth. As Sri Lanka navigates through evolving global economic currents, prudent fiscal management and strategic policy interventions will be vital in ensuring continued stability and prosperity.