According to FINANCIAL CHRONICLE, Sri Lanka’s foreign reserves decreased by 6.2 percent, bringing the total to $6.45 billion by the end of June 2026, down from $6.87 billion the previous month. During this period, the Central Bank engaged in net purchases of $70.5 million in foreign currency.
Last year, the Central Bank took a proactive approach by purchasing dollars to enhance reserves; however, its efforts faced limitations in May due to significant dollar sales and the depreciation of the rupee.
In the first half of 2026, the Central Bank recorded net purchases amounting to $556.4 million, following a substantial net acquisition of $2 billion in 2025. The rupee experienced considerable downward pressure in May, primarily driven by a surge in the fuel import bill, which was exacerbated by escalating tensions in the Middle East and ongoing demand for dollars for new vehicle purchases.
In response to the rapid depreciation of the currency, the Central Bank raised its Overnight Policy Rate in May. The institution has been actively buying dollars from the market to bolster foreign currency reserves in line with commitments made to the International Monetary Fund (IMF) under a $3 billion external financing program, as well as to manage the country’s multilateral and bilateral loan obligations.
This aggressive accumulation of reserves coincides with the upcoming repayment of foreign debts to sovereign bondholders, which is due to commence in April 2028. The reduction in foreign currency reserves noted in June 2026 indicates renewed challenges for Sri Lanka’s external financial stability, even as the country continues its economic recovery efforts post-2022.
Having successfully emerged from a sovereign default through a debt restructuring agreement and securing an Extended Fund Facility (EFF) from the IMF, Sri Lanka is focused on rebuilding its reserves to achieve essential macroeconomic stability targets. A decrease in reserves could hinder compliance with IMF performance metrics, particularly those concerning reserve adequacy and net international reserves.
This situation could potentially delay the release of additional IMF funding tranches, which are vital for maintaining creditor confidence and supporting the balance of payments. Sufficient reserves are crucial for meeting future external obligations without incurring new debts or falling behind on payments.
Although Sri Lanka has made notable strides in restructuring both bilateral and commercial debts, any continued decline in reserves raises alarms regarding its capacity to sustain the recovery trajectory and fully restore relations with international markets. Analysts suggest that policymakers should concentrate on enhancing export revenues, attracting foreign investment, and exercising prudent fiscal management to reverse the downward trend and protect the gains achieved through the IMF-supported program.
