The gross official reserves in Sri Lanka dropped to around $2.5 billion in September 2021-- a decline of almost 28 percent in comparison to August when it was around $3.5 billion, official data showed, amid continued liquidity injections.

Almost two years back, in July 2019, the country’s forex reserves were $7.05 billion when it started inflationary policy and has never been able to collect forex reserves since. Tourism--which came to halt during the pandemic--also jolted the country as it used to be one of 
its biggest forex sources.

Later to boost the demand through injection of cash especially after the pandemic proved counterproductive for the country. Sri Lanka printed a lot of money and at the same time, its external market was failing. 
 
Sri Lanka was hit by a $2.3 billion balance of payments deficit in 2020 and $2.7 billion by July 2021, not counting the latest reserve losses. Despite $1.5 billion currency swap agreement with China, and later $200 million with Bangladesh, Sri Lanka failed to establish its balance of payment crisis and forex reserve. 

Last week, the government had confirmed that it had been in touch with Indian officials for a $500 million credit line. 

(SAM)