Sri Lanka’s Foreign Reserves | When Sri Lanka’s economy collapsed in 2022, the numbers were stark and frightening. The country’s foreign reserves, its buffer against external shocks had plunged to about US $1.9 billion. For a nation that needed billions more to service external debt and import essentials, this was practically nothing. The fallout was immediate: long queues for fuel, medicine shortages, blackouts, and eventually, the first sovereign default in the country’s history.
Three years later, the picture is different. According to Central Bank Governor Dr. Nandalal Weerasinghe, Sri Lanka’s reserves have climbed back to about US $6 billion as of mid-2025. At first glance, this is a remarkable turnaround. But as the Governor himself stresses, the road ahead is long, and the foundations of this recovery remain fragile.
The Governor’s Cautious Optimism
Dr. Weerasinghe’s tone has been consistent since he took over the Central Bank during the height of the crisis. His latest remarks continue that theme: cautious optimism.
He points out that the Central Bank has managed to purchase US $2.3 billion from the market this year alone, the highest such amount in Sri Lanka’s history. This has helped reserves climb steadily and now provide about 3.4 months of import cover. By comparison, during the crisis, reserves could barely cover even a month and a half.
The Governor also highlights the importance of balance. Inflation, which had spiralled out of control in 2022, has now turned negative. That might sound good, but deflation carries its own risks. He insists that monetary policy should not be relaxed too quickly; stability comes first, recovery second. It is a message designed to reassure both citizens and international lenders that Sri Lanka has learnt its lesson.
Looking Back: The 2022 Collapse
To appreciate today’s recovery, we need to recall just how deep the crisis was.
- In early 2022, Sri Lanka’s reserves dropped to levels unseen in decades. With barely US $1.9 billion left, the country had no room to service external debt of over US $50 billion.
- Imports ground to a halt. Petrol stations ran dry, hospitals lacked basic medicines, and schools had to close temporarily because there was no fuel for transport.
- The Central Bank’s reported reserves at the time were also questioned. Critics pointed out that a US $1.4 billion swap line from China was being counted as part of reserves, even though it was not immediately usable.
- The result was inevitable: in April 2022, Sri Lanka announced a suspension of debt repayments, the first sovereign default in its history. The collapse of reserves was at the heart of that story.
Comparing Crisis Years to Today
It is tempting to celebrate today’s US $6 billion figure as a major success. And to be fair, it is a significant improvement. But the comparison between 2022 and 2025 needs nuance.
- Reserve size: From under US $2 billion to US $6 billion in three years. A clear rebound.
- Import cover: From less than two months to over three months still not ideal, but more comfortable.
- Composition: In 2022, reserves were swollen by unusable swaps. Today, the Governor insists the quality is improving, but some critics still argue swaps play too large a role.
- Debt context: In 2022, reserves collapsed just as debt repayments were due. Today, debt has been restructured under IMF guidance, easing pressure on reserves.
The difference is meaningful. Yet the message is clear: Sri Lanka is stronger than it was, but still far from safe.
Risks That Have Not Disappeared
The Governor’s remarks included subtle warnings, and analysts outside the Central Bank echo them.
- Quality of reserves: If a large portion is tied up in swaps, actual “usable” reserves may be less than headline numbers suggest.
- External shocks: A rise in oil prices, a global slowdown, or weaker remittances could all drain reserves quickly.
- Debt repayments: Even after restructuring, Sri Lanka carries a heavy external debt burden. Servicing it will eat into reserves unless exports and investments grow.
- Policy consistency: In the past, reserves were spent to artificially stabilise the currency. If that mistake is repeated, today’s progress could vanish fast.
The Governor’s insistence on discipline avoiding reckless spending of reserves and maintaining a measured policy stance acknowledges these risks.
Why Reserves Matter Beyond Economics
Foreign reserves often sound like abstract financial jargon. But for ordinary Sri Lankans, they are very real. In 2022, the collapse of reserves meant there was simply no money to pay for fuel tankers or medicine shipments. Shops were empty not because goods didn’t exist, but because the country could not pay for them.
Rebuilding reserves is therefore not just about improving balance sheets. It is about ensuring buses run, lights stay on, and hospitals function. A stronger reserve position also builds international confidence, which in turn lowers borrowing costs and attracts investors.
The IMF Connection
Much of the reserve recovery is tied to Sri Lanka’s IMF-backed programme. The IMF has not only injected direct funds but also restored confidence among other partners, including India, China, and Japan. That has unlocked bilateral loans and boosted investor confidence.
The Governor himself is careful to underline this connection. Without external discipline, Sri Lanka’s past record suggests reserves might have been depleted again through poor management. The IMF conditions, however painful, create a framework that forces the country to build rather than spend recklessly.
The Road Ahead
So where does Sri Lanka go from here?
The Governor’s answer is steady accumulation. Building reserves further to the point where they cover six months of imports would provide real stability. Achieving that, however, requires more than Central Bank interventions.
- Exports need to grow beyond tea and garments.
- Tourism must continue its recovery and diversify into higher-value experiences.
- Remittances from workers abroad should be encouraged through formal channels, avoiding leaks to the grey market.
- Investment inflows must be rebuilt, which depends on political and policy stability.
In other words, reserves are a reflection of the wider economy. The Central Bank can only do so much; the rest depends on broader reforms and growth strategies.
Conclusion on Sri Lanka’s Foreign Reserves
Sri Lanka’s foreign reserves have risen from crisis-low levels of US $1.9 billion in 2022 to around US $6 billion in mid-2025. That recovery reflects the Central Bank’s aggressive purchases, IMF support, and greater policy discipline.
Yet, as Governor Weerasinghe himself reminds us, this is a fragile recovery. The risks of swaps, external shocks, and debt pressures remain. For Sri Lanka, the lesson of 2022 is clear: reserves are not just numbers, they are lifelines. Building and safeguarding them is a matter of national survival.
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