Domestic Dollar Swaps Spark COPF Warning on Reserve Risks

Sri Lanka’s Parliament Committee on Public Finance (COPF) has raised serious concerns over the Central Bank’s treatment of foreign exchange swaps, warning that domestic dollar-denominated swaps are not reflected in official Net International Reserves (NIR). COPF Chairman Dr. Harsha de Silva questioned why the Bank excludes domestic forex swaps with institutions such as HSBC and Standard Chartered, despite being obligations that must be settled in dollars.

Central Bank Director of Economic Research Sujatha Jegajeevan confirmed that only external liabilities such as the PBoC, RBI and IMF loans are deducted in the NIR calculation. COPF member Ravi Karunanayake described the swaps as a “hot money operation,” cautioning that the practice could distort Sri Lanka’s reserve strength.

Governor Dr. Nandalal Weerasinghe defended the swaps as short-term liquidity tools, but analysts warn the mechanism injects rupee liquidity, fuels imports and risks future forex losses. COPF has called for full transparency of all swap-related liabilities.

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