Reserves down US$ 46mn

* Short term capital, govt. borrowings grow substantially

The country’s dollar reserves fell by US$ 46 million in August 2012 as short term capital inflows and government borrowings continue to shore up reserves.

The Central Bank yesterday (25) said gross official reserves reached US$ 7,053 million as at end August, down from US$ 7,099 million the previous month.

Inflows to the government had increased 35.7 percent to US$ 4,263.2 million during January-August 2012 from US$ 3,141 million a year earlier, an increase of US$ 1,122.2 million during the eight month period.

Inflows into government securities amounted to US$ 1,867.4 million, up 141.3 percent, while long term debt amounted to US$ 2,292 million, up 0.7 percent.

Portfolio investments reached US$ 226.5 million during this period, compared with an outflow of US$ 94.5 million a year earlier.

Commercial bank long term foreign currency borrowings reached US$ 642.2 million.

The country’s trade deficit expanded year-on-year to US$ 6,266.8 million during the first eight months of this year.

Worker remittances grew 15.6 percent during this period to US$ 3,907.4 million while earnings from tourism amounted to US$ 642.2 million, up 23.1 percent from a year ago.

The Central Bank in a statement said: "With regard to the services account and current transfers in the Balance of Payments (BOP), increased earnings from tourism and workers’ remittances continued to cushion the current account of the BOP.

"Earnings from tourism in August 2012 grew by 16.4 per cent, year-on-year, to US dollars 82 million, while during the first eight months of 2012, earnings from tourism have grown at a rate of 23.0 per cent, year-on-year, to US dollars 642 million. The number of tourists visiting Sri Lanka totalled 79,456 in August 2012, an increase of 9.7 per cent, raising tourist arrivals during the first eight months of 2012 to 622,661.

Workers’ remittances grew by 6.9 per cent, year-on-year, to US dollars 490 million in August 2012, while cumulative inflows on account of workers’ remittances during the first eight months of 2012 increased by 15.6 per cent to US dollars 3,907 million.

"Foreign currency inflows to the financial market continued to strengthen the capital and financial account of the BOP during the first eight months of 2012. Foreign investments at the Colombo Stock Exchange increased by US dollars 250 million, on a net basis, by end September 2012, while there has been a significant increase in foreign investments in government securities, with net inflows to Treasury bills and Treasury bonds during the first nine months of 2012 amounting to US dollars 821 million.

"Further, long-term loans to the government during the first eight months of 2012 amounted to US dollars 2,292 million. In addition, long-term borrowings by commercial banks during January-September 2012 amounted to US dollars 927.5 million. Meanwhile, inflows on account of Foreign Direct Investment (FDI), including foreign loans obtained by BOI companies, of which data become available only quarterly, amounted to US dollars 452 million for the first six months of 2012 and more inflows are expected to materialise during the year.

"Gross official reserves amounted to US dollars 7,053 million by end August 2012, while total international reserves, which include gross official reserves and foreign assets of commercial banks amounted to US dollars 8,694 million. In terms of months of imports, gross official reserves were equivalent to 4.3 months of imports by end August 2012 while total reserves were equivalent to 5.3 months of imports," the Central Bank said.

From end June 2011 to early February this year the Central Bank sold down nearly US$ 3 billion from the reserves to keep the exchange rate artificially strong with imports surging by almost 100 percent last year while interest rates were kept stable as well, which fuelled high credit growth.

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