In a significant financial turnaround, the Central Bank of Sri Lanka has reported a staggering Rs. 274 billion profit for 2024, driven primarily by interest income from its rupee securities portfolio and foreign reserve assets. This marks a notable recovery amid the backdrop of earlier crises and ongoing deflationary policy.
According to the Central Bank’s annual report, Rs. 219 billion of that profit came from interest earned on domestic securities—a drop from Rs. 595 billion in 2023, when the bank had raked in high yields from Treasury bills. The sharp decrease follows the restructuring of over Rs. 3 trillion worth of bills, which the Central Bank had purchased between 2019 and 2022 during the country’s currency crisis and eventual sovereign default.
These bills, once used to inject liquidity, were later rolled over and converted into “step-down bonds” offering lower yields. This was part of a strategy to meet International Monetary Fund (IMF) requirements and avoid a full-scale Ghana-style debt restructuring, which would have kept interest rates high for longer. While this caused a substantial book loss in 2023, it laid the groundwork for the 2024 turnaround.
Foreign reserves also contributed significantly. The Central Bank earned Rs. 68 billion from its foreign asset holdings, compared to a negative carry in 2023, when it paid Rs. 142 billion in interest but earned only Rs. 86 billion on reserves. With the rupee stabilizing and deflationary policy kicking in, net gains in 2024 reached Rs. 110 billion, while expenses dropped to Rs. 83 billion.
By the end of December, the Bank’s local currency assets dropped to Rs. 1,748 billion from Rs. 2,044 billion, as repurchase deals amounting to Rs. 333 billion were closed. However, the Bank emphasized that its bond holdings are not part of an investment strategy but are used as tools for liquidity management and monetary policy, with the focus firmly on price and economic stability rather than maximizing returns.
On the expense side, operating costs stood at Rs. 22 billion, with salaries and wages rising sharply to Rs. 10.5 billion from Rs. 7.5 billion the previous year. Pension fund costs reached Rs. 4.7 billion, a notable shift from last year’s Rs. 3.9 billion reversal.
In sum, the Central Bank’s impressive 2024 profit underscores the effectiveness of its monetary stabilization strategy, despite earlier setbacks. The profit also highlights the delicate balancing act between managing national reserves, navigating IMF obligations, and maintaining economic stability in a fragile post-crisis environment.
