FACTCHECK.LK RESERVATIONS ON SRI LANKA’S REPORTING OF FOREIGN RESERVES
An explainer by FactCheck.lk
Over the past two years, FactCheck.lk has analysed at least five statements by politicians and senior government officials that seem to be misinformed with regard to Sri Lanka’s official foreign reserves. This FactCheck.lk Explainer details the reasons for many of the claims made by officials regarding Sri Lanka’s foreign reserves being inaccurate.
This explainer is structured into four parts: the first defines what qualifies as a foreign reserve asset, the second outlines the types of reserve assets held by Sri Lanka, the third outlines how the reserves reported by the Central Bank of Sri Lanka (CBSL) deviates from the internationally accepted definition for foreign reserves, and the fourth shows how this way of reporting has been repeated and reinforced by politicians, and public officials.
What qualifies as a reserve asset?
The international standard on what can be considered a foreign exchange reserve asset is set out in the IMF’s Balance of Payments Manual, Sixth Edition (BPM6). This is the reporting standard that has been explicitly adopted by Sri Lanka. A reserve asset is defined as one that meets all of the following criteria, simply explained: (i) a claim on a nonresident or in gold bullion of significant purity, (ii) owned or under the direct and effective control of the monetary authorities, (iii) readily available in the most unconditional form (i.e., be liquid), (iv) denominated and settled in convertible foreign currencies that are freely usable for settlements of international transactions, and (v) of high quality (in general). If an asset fails to meet any one of these criteria, it does not qualify as a reserve asset.
What are the types of foreign reserves held by Sri Lanka?
Sri Lanka’s reported foreign-reserve portfolio, comprises six broad lines: (1) gold; (2) Special Drawing Rights (SDRs) from the IMF (representing funds lent by the IMF); (3) Sri Lanka’s reserve position in the IMF (which reflects the country’s deposits with the IMF); (4) liquid foreign-currency assets (cash and term deposits with foreign banks plus marketable securities such as US Treasuries); (5) derivative financial instruments such as currency swaps and forward exchange rate contracts; and (6) other foreign currency assets that do not fall under the above classifications.
How do CBSL’s reported reserves differ from IMF standards?
The main source of misunderstanding in Sri Lanka arises from how the CBSL reports “gross official foreign reserves”. The reporting adds to it an asset that does not meet the international standard for what qualifies as a reserve asset. Specifically, the reporting counts a RMB 10 billion (≈ USD 1.4 billion) currency swap from the People’s Bank of China (PBoC). This currency swap is subject to significant unmet conditions on usability (see Additional Note 1). This means that Sri Lanka cannot freely access or use the funds—violating a key qualifying criterion of the international definition, which states that reserve assets must be readily available in the most unconditional form (i.e., be liquid). Despite failing to meet the criteria to qualify as a reserve asset, the full value of the PBoC swap has been included in Sri Lanka’s reserve reporting.
An examination of the CBSL’s report footnotes from November 2021 to March 2022 shows that the PBoC currency swap—which had not previously been counted as part of Sri Lanka’s reserves—was first included in December 2021. However, by May 2022, the CBSL clarified that the swap being counted as reserves was subject to conditionalities on usability.
The IMF’s reporting confirms this position. In its staff reports, the IMF now explicitly distinguishes between gross official reserves (as reported by the CBSL) and usable reserves (as evaluated by the IMF). The IMF does not count the PBoC swap in its reporting on usable reserves. By counting only a subset of Sri Lanka’s reported reserves as “usable”, the IMF is thereby relegating the balance to “unusable” reserves.
But an unusable reserve is an oxymoron: based on the definition, if it is “unusable” it cannot be classified as a reserve asset. It is like claiming a freshly formed fossil—when a fossil by definition cannot be fresh.
If Sri Lanka’s reserve reporting maintained integrity with the internationally accepted definition it would exclude the PBoC swap from the official reserve figure. For example, in May 2025 the CBSL reported official reserves as USD 6.3 billion, with the PBoC swap included. If its reporting aligned with international standards, it would be only reporting around USD 4.9 billion.
How do politicians and officials repeatedly misstate foreign reserves?
There are typically two types of mistakes in the statements on reserves by high-level decision makers that have been fact-checked.
The first mistake is the overstatement of reserves by using a figure that includes assets which do not meet the international definition of a reserve asset—such as the PBoC currency swap (see above for explanation). This error is understandable, as it flows from how reserve data is presented in official reports.
The second mistake is overstating the reserve increase by using two different methods of counting reserves. The starting point is often cited as April 2022, where reserves are said to have been around zero (which is correct and does not include the PBoC swap). However, the end point is presented using a reserve figure that includes the PBoC swap. This leads to a false understanding of the increase in reserves. If only the first mistake (of counting the “unusable” PBoC swap) were made, these statements would not have been evaluated as false provided that the counting method was consistently applied in any comparison made between two periods.
Any official quoting a reserve figure must maintain consistency to ensure accurate and factual reporting. If the figure includes the PBoC swap, comparisons with other periods must include it; if it excludes the swap, all compared figures must do the same. For example, the CBSL’s Annual Economic Review 2024 includes the PBoC swap in both the 2022 and 2024 reserve figures to illustrate a post-crisis recovery. The recommended approach—consistent with international standards—is to compare the change in what the IMF reports as “usable reserves”, excluding assets that don’t meet the definition of a reserve asset, such as the current PBoC swap.
Additional note 1: The CBSL does not explicitly mention the usability restrictions for the PBoC swap. However, the IMF reporting makes clear that the PBoC swap has not been usable as a reserve up to the present time (March 2025). It is possible that the usability restriction could be removed at some point in the future; if that happens, at that point the PBoC swap would legitimately count as part of Sri Lanka’s foreign reserves.
Page last edited: 12 June 2025
Sources
Central Bank of Sri Lanka. (2023). Weekly indicators. https://www.cbsl.gov.lk/en/statistics/economic-indicators/weekly-indicators
International Monetary Fund. (2023). Sri Lanka: First review under the extended arrangement under the extended fund facility (IMF Country Report No. 23/12). https://www.imf.org/en/Publications/CR/Issues/2023/12/12/Sri-Lanka-First-Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-Facility-542441
International Monetary Fund. (2009). Balance of payments and international investment position manual (6th ed.). https://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf
International Monetary Fund. (2023). Frequently asked questions on the IMF’s reserve position in the SDR Department.https://www.imf.org/external/np/sta/ir/IRProcessWeb/pdf/faqapp.pdf
Central Bank of Sri Lanka. (2023). The Central Bank of Sri Lanka enters into a bilateral currency swap agreement with the People’s Bank of China. https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/P.R_20210322_The%20Central%20Bank%20of%20Sri%20Lanka%20enters%20into%20a%20Bilateral%20Currency%20Swap%20Agreement_E.pdf
Mallawarachi, B. (2022, February 9). Sri Lanka foreign reserves at record low, politics in crisis. AP News. https://apnews.com/article/covid-business-health-economy-sri-lanka-a742a0ebe7a7e0734960d68e49bed69a
Wickramasinghe, R. (2023). Statement of government policy by the President Hon. Ranil Wickramasinghe presented on 2023-02-08 at the ceremonial opening of the fourth session of the ninth parliament. Parliament of Sri Lanka. https://parliament.lk/files/documents_news/2023/gov-policy-statement-en.pdf
Daily Mirror (January 10, 2022). SL draws down Chinese swap to close 2021 with US$ 3.1bn foreign currency reserves. https://www.dailymirror.lk/business-news/SL-draws-down-Chinese-swap-to-close-2021-with-US-3-1bn-foreign-currency-reserves/273-228688#:~:text=A%20few%20days%20before%20the,how%20it%20had%20done%20so. AID Data, https://china.aiddata.org/projects/89457/#:~:text=%27%20Multiple%20sources%20indicate%20that%20the,as%20of%20December%2031%2C%202021.