Sri Lanka’s foreign reserves Fall in Sept 2026; CB buys dollars
ECONOMYNEXT – Sri Lanka’s foreign reserves fell 1.1 percent to US$ 6,851 million by the end of September 2026, down from 6,929 million dollars a month earlier amid central bank purchasing US$64.2 million on a net basis in the month.
The Central Bank has been aggressively buying dollars to boost the reserves.
Analysts say the Central Bank’s year end reserve target of US$8 billion is achievable with the dollar inflows from the IMF and other multilateral institutions in the final quarter of 2026.
The Central Bank sold dollars in May amid sharp depreciation of the rupee currency that month
The Bank sold over US$211 million net in May, marking the first net selling in 22 months.
The Central Bank has net bought US$1,548.8 million in the first nine months of 2026 following a net purchase of US$2 billion last year.
The rupee was under high downward pressure in May as the imports bill for fuel rose unusually high following the Middle Eastern escalation amid continued demand for dollars to buy new vehicles.
However, it reversed course and gained in the next two months before falling in September.
The Central Bank has been buying dollars aggressively from the market to boost foreign currency reserves to meet the targets the country agreed with the IMF under the US$3 billion external fund facility and to repay the island nation’s multilateral and bilateral loans.
The Central Bank in May raised its Overnight Policy Rate amid heavy depreciation of the currency.
The Central Bank’s aggressive reserve building comes ahead of the repayment of foreign debts to sovereign bond holders. This repayment is scheduled to start from April 2028.
After successfully exiting sovereign default through a debt restructuring agreement and securing an IMF Extended Fund Facility (EFF) programme, Sri Lanka has been rebuilding its reserves to meet key targets for macroeconomic stability.
For debt repayment, adequate reserves are essential to meet upcoming external obligations without resorting to new borrowing or accumulating arrears.
While Sri Lanka has made significant progress in restructuring bilateral and commercial debts, any sustained erosion of reserves raises concerns about its ability to sustain the recovery trajectory and fully normalize relations with international markets.
Analysts say policymakers will likely need to focus on boosting export earnings, attracting foreign investment, and prudent fiscal management to reverse the decline and safeguard the hard-won gains from the IMF-supported programme. (Colombo/October 11/2026)