Features
Ideal level of foreign reserves:
A key to economic stability
“CBSL Governor Predicts USD 7 Billion Foreign Reserves by Year-End” was the headline featured on the front page of this newspaper last Wednesday, January 8, 2025. During a discussion on Derana TV, Governor Dr. Nandalal Weerasinghe highlighted that the country’s foreign reserves remained robust, noting, “If Sri Lanka could maintain USD 8 billion in reserves, it would create a strong buffer to meet foreign debt obligations effectively.”
Foreign reserves, comprising foreign currencies, gold, and other international assets held by a country’s central bank or monetary authority, play a critical role in ensuring macroeconomic stability. They serve as a buffer against external economic shocks, underpin currency stability, and instill confidence in a country’s financial system. However, the question of what constitutes the “ideal” level of foreign reserves is complex, involving trade-offs between economic efficiency, opportunity costs, and risk management.
The Importance of Foreign Reserves
Foreign reserves are used to stabilize the national currency by intervening in the foreign exchange market. By buying or selling foreign currencies, central banks can mitigate volatility and maintain exchange rate stability, which is crucial for trade and investment. Countries rely on reserves to meet external debt obligations and finance imports of essential goods, such as food, energy, and medicine. Inadequate reserves can lead to default or economic crises, as seen in countries like Sri Lanka during recent years. Reserves act as a financial safety net during periods of capital outflows or sudden economic shocks, such as a global financial crisis or geopolitical instability. A robust reserve position signals economic resilience, attracting foreign direct investment (FDI) and maintaining credit ratings.
Determining the Ideal Level of Foreign Reserves
The ideal level of foreign reserves depends on a country’s unique economic and financial context, but several frameworks and guidelines have been developed to assess adequacy:
Traditional Metrics:
A widely accepted benchmark suggests reserves should cover at least three months of imports. This ensures the country can sustain essential imports during periods of economic uncertainty. Also, reserves should be sufficient to cover short-term external debt obligations, as a precaution against liquidity crises.
Modern Approaches:
The IMF recommends a more nuanced approach, considering factors like export income, external liabilities, and capital flow volatility. This metric is especially relevant for emerging economies prone to speculative capital movements. In countries with floating exchange rates, reserves should cover potential outflows from speculative attacks on the currency.
Both approaches involve opportunity Cost:
Holding foreign reserves incurs costs, as these funds could be invested in higher-yielding domestic projects. Excessive reserves may lead to inefficiencies, suggesting a balance is necessary between precautionary savings and productive investment.
Case Studies: Successes and Failures
China:
China maintains one of the world’s largest foreign reserve portfolios, over $3 trillion. This ensures exchange rate stability, supports trade policies, and positions China as a global economic powerhouse.
Singapore:
Singapore, despite its limited natural resources, maintains high reserve levels through disciplined fiscal policies and an export-driven economy. Its sovereign wealth fund, Temasek, ensures effective reserve utilization.
Sri Lanka:
A stark contrast is Sri Lanka, which experienced a severe reserve depletion, leading to defaults on foreign debt and import shortages. This crisis underscores the importance of adequate reserves for import and debt coverage.
India:
India has gradually built its reserves, maintaining a position above $500 billion. These reserves have proven instrumental in shielding the economy from global shocks, such as the COVID-19 pandemic and rising oil prices.
Lessons for Sri Lanka
Sri Lanka’s economic challenges in recent years, particularly its foreign exchange crisis in 2022, have highlighted the critical role of foreign reserves in ensuring economic stability. Once considered a growing economy with promising tourism, remittances, and agricultural exports, Sri Lanka faced a severe financial and social crisis due to inadequate reserve management and structural vulnerabilities. Understanding the principles of ideal foreign reserve levels through the lens of Sri Lanka’s experiences reveals crucial lessons for both the country and other developing nations.
Sri Lanka’s Foreign Reserve Crisis: Context and Causes
Debt-Fueled Growth:
Sri Lanka borrowed extensively for infrastructure projects without adequately assessing their economic viability or long-term returns. These projects, including the Hambantota Port and Magam Ruhunupura International Convention Centre, Mattala International Airport, Mahinda Rajapaksa International Cricket Stadium (aka Sooriyawewa International Cricket Stadium), and Colombo Lotus Tower, have failed to generate sufficient revenue to service the associated debt.
Tax Cuts and Governance Issues:
Significant tax cuts in 2019 eroded government revenues, forcing reliance on foreign borrowing. Additionally, political instability and mismanagement eroded investor confidence.
Overvalued Exchange Rate:
The Central Bank of Sri Lanka intervened heavily to maintain an artificially strong Sri Lankan rupee, depleting reserves.
Global Shocks:
The COVID-19 pandemic decimated tourism revenue, which historically contributed around 12% of GDP. A subsequent decline in remittances and rising global fuel prices further strained reserves.
Theoretical Insights Applied to Sri Lanka:
The traditional three-month import cover benchmark is critical. At its crisis peak, Sri Lanka’s reserves were below this level, leading to acute shortages of fuel, medicine, and food. Sri Lanka’s foreign debt-to-reserve ratio reached alarming levels, far exceeding manageable thresholds. Reserves must be sufficient to cover short-term debt obligations to prevent default and maintain investor confidence. The IMF’s Reserve Adequacy Metric (RAM), which considers external liabilities and potential capital flight, offers a more tailored framework for Sri Lanka. While accumulating reserves incurs opportunity costs, Sri Lanka’s experience shows the higher cost of reserve inadequacy. Future policies should strike a balance by maintaining adequate reserves while channeling surplus funds into high-return investments, such as export-oriented industries or renewable energy.
Challenges in Managing Foreign Reserves
Exchange Rate Dilemma:
Excessive intervention to stabilize currency can deplete reserves or create artificial currency valuations.
Inflation and Sterilization Costs:
High reserves may necessitate sterilization measures to control inflation, leading to additional costs for central banks.
Global Economic Trends:
Rising interest rates in advanced economies can cause capital outflows from emerging markets, straining reserves.
Sri Lanka’s recent economic struggles underscore the critical importance of maintaining adequate foreign reserves as a foundation for economic stability. The ideal level of reserves for Sri Lanka—or any nation—is not a fixed number but a dynamic balance tailored to the country’s unique economic structure, external vulnerabilities, and policy priorities. For Sri Lanka, this balance must address its structural challenges, including import dependency, high external debt, and exposure to global shocks.
The ideal level of foreign reserves should be sufficient to cover essential external obligations, cushion the economy against unexpected shocks, and foster long-term stability. At the same time, maintaining reserves must not impose excessive opportunity costs, such as diverting resources from productive domestic investments. Balancing these needs requires a forward-looking, flexible approach to reserve management that integrates both traditional metrics, such as import coverage and debt servicing, and modern considerations like capital flow volatility and geopolitical risks.
For Sri Lanka, the path to achieving an optimal reserve level lies in addressing its structural vulnerabilities and adopting globally proven strategies. This involves building reserves sustainably through export diversification, prudent fiscal policies, and multilateral cooperation. Export-oriented industries, remittance flows, and foreign direct investment (FDI) must be strengthened to ensure stable foreign exchange inflows. Additionally, restructuring external debt, ensuring fiscal discipline, and enhancing transparency in reserve management will bolster confidence among international stakeholders.
By learning from its past mistakes and integrating traditional economic frameworks with modern realities, Sri Lanka can rebuild its reserves and lay the groundwork for economic recovery, as suggested by the Central Bank Governor. A robust reserve position will not only stabilize the economy but also create a foundation for sustainable growth and resilience in the face of future challenges.
(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@slit.lk and www.researcher.com)
Features
Combining local resources,traditional knowledge and science to build a food-secure Sri Lanka
World Food Day 2026: Innovating today for a better food future
by Dr. Kaushalya Wijayasekara
What will be on the Sri Lankan dinner table ten years from now? Will our children be able to get nutritious food at a price their families can afford? Will farmers be able to grow enough despite changing weather and rising costs? And how much of the food we produce will actually reach the consumer, instead of being lost or wasted along the way?
These questions can’t wait. A farmer faces unpredictable weather. A family faces rising food costs. Fruit goes unsold after a good harvest. Some children do not get enough nutrition. The future of food is tied to the future of Sri Lanka itself.
World Food Day 2026 is a chance to look beyond the immediate problems and ask whether we can build a food system that feeds our people well, gives farmers better opportunities, protects the environment and makes better use of what we already have. The answer can be yes, but we will have to think differently.
We are not starting from zero. Sri Lanka has diverse crops, fisheries, traditional food knowledge, indigenous varieties, research institutions, universities and a young generation able to create new solutions. What we need is to bring these together and act. Producing more will not secure our food future on its own. It will depend on how intelligently we produce, process, preserve, distribute and consume food.
Making more of what we already have
Innovation does not always mean inventing something new. Often it means finding better uses for the resources we have.
Sri Lanka grows traditional rice varieties, kurakkan, green gram, cowpea, jackfruit, breadfruit, cassava, sweet potato, coconut and palmyrah. All of them have great potential for modern, nutritious, value-added foods. Jackfruit and breadfruit can be made into flour and other convenient products. Traditional rice varieties can go into new foods that suit changing consumer needs. Palmyrah, with its strong cultural heritage, can create new income through better processing, packaging, quality assurance and market development.
The aim is to connect our traditional food knowledge with modern consumer needs and technology, while keeping our food heritage.
Stop wasting the food we produce
Reducing food loss and waste should be a major priority. Seasonal fruits such as mango, banana, papaya and pineapple can be lost in large quantities when production exceeds demand or when storage, transport and processing facilities are inadequate. With suitable technology, these fruits can become dried products, pulps, powders, beverages and other shelf-stable foods.
Agricultural and fisheries by-products are resources too. They could be turned into food ingredients, animal feed, bio-based products and other useful materials, which would move us toward a more circular food economy.
Technology alone is not enough. We need stronger local processing facilities, cold storage, efficient transport, collection centres and market information systems, especially close to where food is produced. Cutting food loss raises the value of what our farmers and fishers already produce.
Nutrition and food safety come first
Food security means more than having enough food. People also need food that is safe and nutritious.
Sri Lanka can develop affordable, nutritious foods from local pulses, grains, vegetables, fruits and fish. Children and other vulnerable groups should get particular attention. Schoolchildren in particular deserve a focus: safe, nutritious, locally sourced products for school feeding programs would support child nutrition, local farmers and domestic food industries at the same time.
Food safety must stay at the centre of food innovation. Good hygiene, quality control, laboratory testing, traceability and appropriate food safety systems are what make new products safe as well as attractive and nutritious.
A food system that can cope with climate change
Climate change is already affecting agricultural production, water availability, crop yields and food prices. We need food systems that can handle changing conditions. That means climate-resilient crops, efficient water use, soil and water conservation, better storage and resource-efficient food processing.
Traditional knowledge matters here. Generations of Sri Lankan farmers have developed practices suited to local climates and ecosystems. Combining that experience with modern science can give us solutions that fit local conditions and are sustainable. Technology alone will not build the future of food. Science, experience and local knowledge together can.
Give young people a bigger role
Sri Lanka’s universities have an important part to play in shaping our food future. Young people should be encouraged to identify real problems in the food system and work on practical solutions in areas such as food waste, sustainable packaging, nutrition, food safety, modernising traditional foods and digital technologies.
A good research project should not always end as a research paper. Where appropriate, research should be supported to move on to products, technologies, enterprises and community solutions. That needs stronger partnerships between universities and industry, along with mentoring, research funding, business support and market connections. If young researchers and entrepreneurs can turn their ideas into viable food innovations, both consumers and producers will benefit.
A pathway designed for Sri Lanka
We do not need to copy food-system models from other countries. We can build a pathway that suits our own resources, culture and needs. It would bring together local resources, traditional knowledge, scientific research, appropriate technology and entrepreneurship, with farmers, fishers, universities, research institutions, food industries, entrepreneurs and policymakers working side by side.
The goal goes beyond selling raw materials. We need to create more value, reduce waste, improve nutrition, generate jobs and strengthen rural livelihoods. This matters especially for small and medium-scale food enterprises, which can drive local economic development when they get the right technical, financial and market support.
The choices we make today
The food future will not create itself. It will be shaped by what we grow, what we research, what we process, what we consume and what we choose not to waste.
So, the question for World Food Day 2026 is this: what can we do today so that every Sri Lankan has safe, nutritious, affordable and sustainable food tomorrow?
The answers are already around us, in our farms, fisheries, food businesses, universities, laboratories and communities. We have the resources, the traditional knowledge, the scientific expertise and talented young people. What we need now is to connect them and act.
A better food future begins with the choices we make today.
Dr. Kaushalya Wijayasekara
Senior Lecturer, Department of Biosystems Technology, Faculty of Technology, University of Ruhuna
Features
20th Anniversary of Digampathana blast – the day Sri Lanka Navy cried
By Admiral Ravindra C Wijegunaratne
WV, RWP and Bar, RSP, VSV, USP, NI (M) (Pakistan), ndc, psn, Bsc
(Hons) (War Studies) (Karachi) MPhil (Madras)
Former Navy Commander and Former Chief of Defence Staff
Former Chairman, Trincomalee Petroleum Terminals Ltd
Former Managing Director Ceylon Petroleum Corporation
Former High Commissioner to Pakistan
The Digampathana suicide truck attack on 16th October 2006 remains the deadliest single strike in Sri Lanka Navy history, leaving scars that time cannot erase.
It was a seemingly ordinary Monday morning on 16 October 2006, but the calm of that day would soon be shattered in a way none of us could have imagined. As the Commandant of the Naval and Maritime Academy and Flag Officer Commanding Naval Fleet at Trincomalee, I was aware that a number of my cadets were travelling that morning, part of a convoy of fifteen buses carrying naval personnel from Trincomalee, Colombo, and other bases, heading toward Dambulla to rendezvous with another group. The convoy also included trucks and escort vehicles, a routine movement planned and coordinated with the army to ensure the roads were clear. The morning started quietly. Some personnel greeted friends, handed over their weapons, or strolled to a nearby tea shop. It all seemed so ordinary—too ordinary for what would come next.

Sri Lanka Navy sunk LTTE Ships carrying arms, ammunition and warlike materials thousand miles away from Sri Lanka in Indian Ocean in September and October 2007.
By late morning, both convoys had reached the small ground at Digampathana, near the Sigiriya junction, and personnel mingled briefly, unaware that a carefully orchestrated act of terror was waiting. Then, suddenly, an empty half-truck veered directly into the convoy. It exploded with a ferocity I can still recall as if it were yesterday. Nuts, bolts, and high explosives tore through the air. Pandemonium erupted instantly. I later learned that 107 of our naval personnel were killed on the spot and another 153 critically injured. The scene was indescribable—bodies scattered, vehicles mangled, personal effects strewn across the ground. I remember later hearing that the head of the suicide bomber was recovered more than 100 meters away from the blast, a grim testament to the sheer force of the explosion.
I was in my office at the Naval and Maritime Academy when my mobile phone rang. A young midshipman from the 21st intake called, his voice trembling: “Sir, there was a huge explosion at the convoy point! Many are dead … my batch mate Wijesundara is among them.” I immediately jumped into my jeep with my escort Chief Petty Officer and driver and rushed to Digampathana, relying on every ounce of my driving skill to reach the scene. The journey, which usually took little more than an hour, felt endless that day, each passing mile weighed down by dread.
When I arrived, I was confronted with a sight that no training can prepare you for. The injured were being rushed to Dambulla Hospital, where doctors and nurses worked tirelessly, improvising in ways that saved lives despite the overwhelming chaos. I went back to the site after visiting the hospital. The remains of our naval personnel were scattered across the ground, and someone had begun collecting weapons and protective gear. I immediately contacted Surgeon Rear Admiral Nico Jayasekara and received his instructions: collect all body parts in separate bags and transport them to the Trincomalee Naval Hospital mortuary. This gruesome work had to be done with care and dignity, and it filled the icebox in my vehicle. Through DNA testing initiated by Rear Admiral Nico, we were able to identify every naval personnel lost that day, bringing some closure to grieving families.
The Navy Commander at the time, Vice Admiral Wasantha Karannagoda, was devastated. I had worked closely with him and knew how deeply he cared for his men. He ensured that the fallen were honoured with full ceremonial naval funerals at Welisara Naval Base, attended by families and comrades. Sixty-seven funerals were conducted in a single day—a number that still haunts me.
The Digampathana attack remains the largest single loss of naval life in our history. It was a day of sorrow, but also a day that reinforced our resolve. The tragedy galvanized the Navy to target the LTTE Sea Tiger wing with renewed determination and reshaped our maritime operations forever. Every time I think of that day, I remember not just the lives lost, but the courage, professionalism, and dedication of those who survived, those who treated the injured, and those who ensured the fallen were honored properly. May the souls of our naval hero’s rest in peace, their sacrifice guiding us and inspiring generations of naval personnel to come.
Features
‘Murder at Whitby Abbey’
Tales of Mystery and Suspense – 24
I was intrigued by the title of a book I found in a book drop at the condominium of a friend, Murder at Whitby Abbey, and I brought it home with me though I will not be able to return it in the near future. It was described on the cover page as ‘a standout in the crowded medieval mystery field’, though I fear I do not know of other books in this field, apart from the Cadfael series, which I have dealt with earlier.
The book, by Cassandra Clark, is set during the reign of Richard II and has as a backdrop his precarious position, which led to his being replaced, and murdered, by his cousin Henry, who reigned as Henry IV. It is a gloomy book, the action taking place in the twelve days of Christmas leading up to the Epiphany. And the gloom is pervasive, even though this is supposed to be a time of festivity, with mummers performing, and many of those in the guest house where the heroine stays going to town to enjoy themselves, with much drinking and much music, which also fills the guesthouse.
The heroine Hildegarde is a nun, sent to try to acquire a relic being sold by Whitby Abbey, though this was also a penance set by the Abbot of the monastery that governed her abbess because she had had sex with a man. Soon after she and her companions reach the Abbey set high on a cliff, she finds that there are other bidders, and soon suspects that the hierarchy, not perhaps the Abbot who seems a weakling, but his rapacious bursar, is determined to make money, and not above creating false relics to sell to several aspirants.
After Hildegarde and her Cistercian companions – Whitby is a Benedictine Foundation – two monks, Gregory and Egbert, and a young priest Mark, reach the abbey, they find that Aelwyn, a monk they had met on their way to the guesthouse had died. This was in the apple store, and they realize, when they find the surplices of novices stuffed into the air vents, that he had been left to suffocate in the overwhelming scent of apples.
The Cistercians are asked to look into the death, perhaps because they are likely to get no cooperation from the Abbey folk, but perhaps because those in charge are keen to know what happened. And the infirmarer, an old monk, suggests Hildegarde talk to a man called Edred who worked for the bursar, and had been a friend of Aelwyn’s. But Edred too is killed, before he can keep an appointment he had made with Hildegarde, drowned in a pool near the farmhouse of the Abbey.
Meanwhile tensions arise between the fisherfolk and the abbey for the bursar wants to charge them for using the beach that technically belongs to the abbey to dry their fish and their nets. This leads to physical battles, when the guards used by the abbey, under the command it seems of the bursar whose determination to make money is not resisted by the abbot and the prior, try to storm the area where the fishermen live.
Hildegard finds out more about what had happened through two youngsters, one of whom Torold is the son of Aelwyn by a woman who worked as a prostitute for a cartel, and with whom Mark fell in love. The other works on the farm and had seen Edred meet someone near the pool, after which that someone left the place by himself. And the boy had also found in the pool a sort of dagger with the seal of the abbey.
He and his dog, and Torold who follows her, rescue Hildegarde from a man at arms who has waylaid her and tries to rape her earlier. Escaping into the abbey she was nearly been raped then by the bursar, but she managed to escape, in the process setting fire to him and the muniments room, which led, when he was rescued, to the discovery of a box with the money he said had been stolen, blame being cast on both Aelwyn and Edred.
Matters come to a head when the fisherfolk try to storm the abbey, being resisted by the men at arms stationed on the towers. But then Hildegarde realizes that behind the murders was the bursar’s clerk, whom she pursued to the cathedral. There is great drama then as she escapes from him when he tries to kill her, and then from the man at arms who had tried to both rape and kill her, but they both fall from the scaffolding she had climbed, the latter coming from a tower where he had been stationed.
Both of them think they run the rapacity of the abbey, the latter claiming to work for the nobles opposed to Richard, who is presented throughout the book as devoted to his subjects, not to power or money. But though the villains die, the bursar continues, having got over the hysteria the fire had caused and his acknowledgment then of guilt – and though the abbot and the prior seem less vicious, whether they will be able to assert themselves is questionable.
Before the climax, when the others in the guesthouse were leaving, Hildegarde found that two of them were in possession of the relic, for which they seem to have paid well. Hildegarde herself had made a derisory offer, but before she leaves the abbot gives her the relic, perhaps in gratitude for what she and her fellow Cistercians had discovered, the abbey having made as much money as it needed and more from the gullible other buyers.
Mark’s inamorata is saved from the stews because she moves in with Edred’s widow whom the bursar had thrown out of the rooms he occupied when her husband was found dead. Hildegarde had paid for lodgings, in a house run by the man who ran the brothels, but he had a kindly side and was going to finance them to make nets for the fishermen.
So, the Cistercians set off for their home as swiftly as they can to get there on the day of the Epiphany, having stopped en route to pray for King Richard whose birthday it was.
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