Sri Lanka's foreign reserves have been overstated by USD $1.4 billion in central bank reporting due to the inclusion of a currency swap from China that does not meet international standards.
In a report published by Factcheck.lk, discrepancies in how the Central Bank of Sri Lanka reports "gross official foreign reserves" were noted as they did not align with the international definition of a reserve asset. Secondly, inconsistency in the CBSL's reporting of total foreign reserves was reported between 2022 and 2024, as two different methodologies were used to count reserves between the years.
The international standard on what can be considered a reserve must meet the following 5 criteria.
(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).
The main source of misunderstanding in Sri Lanka is caused by how the CBSL reports “gross official foreign reserves”. The reporting adds 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. 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)'. Although Sri Lanka has not listed usability restrictions imposed on this currency swap, IMF reporting has not included the PBoC swap as a usable reserve. In May 2025, the CBSL reported official reserves as USD $6.3 billion, with the PBoC swap included. If the reporting aligned with international standards, it would be only around USD $4.9 billion.
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, which has brought into question the credibility and transparency of Sri Lanka's financial reporting.
Coupled with inconsistent reporting practices, Factcheck.lk notes that several Sri Lankan politicians have selectively used incorrect 'reserve figures' to paint an optimistic picture of the nation's economic recovery since its default in 2022.
As Sri Lanka continues to struggle with its economic recovery, this revelation will further dent investor confidence in the capability and competency of the government.
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