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
Coercive laws recipe for future misrule
by Jehan Perera
The NPP government is going after powerful figures from the past and present who have engaged in corruption, fraud and criminal activity in a way that no previous government in Sri Lanka has done. Former ministers, politicians and senior state officials are among those facing investigations and legal proceedings. The government has placed before Parliament a document listing 50 cases involving corruption, fraud and other crimes. These include not only financial offences but also cases relating to the Easter Sunday attacks, the killings of Lasantha Wickrematunge and Wasim Thajudeen, the disappearance of Prageeth Ekneligoda and attacks on journalists Keith Noyahr and Upali Tennakoon.
The significance of this effort is that it can demonstrate that nobody is above the law, regardless of political connections or social standing, which will help restore public confidence in institutions that have long been distrusted. It could also recover public resources, improve the investment climate and strengthen the foundations for a more prosperous and just Sri Lanka. When criticised for focusing on the past and not the present, the government position is that these investigations were initiated under earlier governments, particularly between 2015 and 2019, and that it is now allowing investigators to proceed to deal with the backlog without political interference.
But there is an aspect of the government’s approach that is less justifiable. While pursuing past wrongdoing by powerful individuals, it is also advancing a triumvirate of draft laws that could give the state sweeping powers over citizens, organisations and dissent in the present and future. The draft Prevention of Terrorism legislation, the Prevention of Organised Crimes Bill and the NGO Registration and Supervision Bill raise serious questions about the over-centralisation of power. Each of these laws strengthens the powers of the state while weakening the rights and safeguards that protect people from their misuse and thus questions the basic rights of people in democracy where ‘the power of the people is vested in the government’. This is a recipe for future misrule rather than the rule of law. As the well-known saying goes, power corrupts and absolute power corrupts absolutely.
Proposed Laws
The real test of system change, for which the government obtained an overwhelming mandate, requires not only a government willing to hold others accountable, but one prepared to subject itself to the same principles of legality, transparency and restraint. The three proposed laws that are particularly important in this regard are the Protection of the State from Terrorism Bill, the Prevention of Organised Crimes Bill and the NGO Registration and Supervision Bill. Each of these draft laws has been presented as serving a legitimate purpose. Preventing terrorism, combating organised crime and ensuring that NGOs do not facilitate money laundering or terrorist financing are proper responsibilities of the state. Sri Lanka has international obligations in these areas, and no responsible government can disregard them. However, the existence of a legitimate objective does not justify every means adopted to achieve it.
The proposed Protection of the State from Terrorism Bill illustrates the problem. Although its definition of terrorism draws on a model developed by a former United Nations Special Rapporteur, the Human Rights Commission of Sri Lanka has warned that the definition of terrorism extends beyond the model and could bring legitimate political protest, trade union action and civil disobedience within the scope of counter-terrorism legislation. Its concerns also include prolonged detention, inadequate judicial oversight and restrictions on access to legal counsel. These are objections that go to the heart of the relationship between the citizen and the state. The government cannot credibly promise to protect democratic freedoms while creating powers that could be used to restrict them. It is necessary for the government to reassess the draft through transparent consultation and revise provisions that could criminalise legitimate dissent.
The Prevention of Organised Crimes Bill raises similar concerns. It is presented as giving effect to the United Nations Convention against Transnational Organised Crime, which Sri Lanka ratified in 2006. The Centre for Policy Alternatives (CPA) has argued that the convention does not require many of the bill’s provisions. The proposed law extends to a broad range of offences, permits detention orders lasting up to a year, makes confessions to police admissible for purposes of legal evidence, and introduces extensive surveillance powers. A law intended to dismantle criminal networks should not create a parallel system of exceptional powers that could be applied far beyond organised crime. Nor should safeguards developed through years of experience with abuses under the Prevention of Terrorism Act be weakened through legislation bearing a different name. The government should review whether or not existing laws could be used effectively to control these crimes or whether each exceptional power is necessary.
Civil Society
The proposed NGO Registration and Supervision Bill presents another test of the government’s intentions. The government may reasonably seek transparency in the finances of organisations receiving public or foreign funds, including measures to prevent money laundering and terrorist financing. It seeks to justify its overreach on the grounds of meeting the internationally mandated requirements of the Financial Action Task Force (FATF) for the Asia-Pacific region. But these objectives do not justify placing civil society and NGOs under excessive administrative control when even the FATF ranks them as low to medium risks. The draft bill would require registration and renewal, impose extensive obligations on organisations and empower authorities to suspend or deregister them on broadly framed grounds. It is important to redraft provisions that confer excessive discretion over registration, renewal, suspension and deregistration of NGOs.
Among the concerns raised by United Nations human rights special rapporteurs with regard to the draft NGO law are provisions requiring organisations to align with government policies and restrictions that could affect advocacy, dissent and freedom of association. The implications extend well beyond organisations that engage directly with the government. Community groups, human rights organisations, independent researchers and organisations working on reconciliation or accountability could find their activities constrained by uncertainty over how these provisions might be interpreted. Organisations that criticise government policies are not thereby working against the country. Their freedom to do so is part of what distinguishes a democracy from a system in which the government determines which opinions and activities are acceptable.
The government has generated considerable public goodwill through its pursuit of corruption and criminality. It should not assume that this goodwill gives it an unlimited mandate to strengthen the coercive powers of the state. The NPP knows from its own history that governments can treat dissent as a threat and use the machinery of the state against their opponents. There is still time to correct the drafts through transparent public consultation, narrow definitions of offences, meaningful judicial control over detention and surveillance, and effective remedies against arbitrary decisions. A government that pursues corruption while weakening safeguards against state abuse risks undermining its own achievements. Besides bringing to light the abuse of power by previous governments, the NPP government needs to build a system in which no future government can abuse power in the belief they can get away with it.
Features
Quality assurance without quality enhancement: The irony of university QA
By Ramya Kumar
According to the Quality Assurance Council (QAC) of the University Grants Commission (UGC), quality assurance (QA) refers to “the means (i.e. the policies, attitudes, actions, procedures, etc.), by which an institution can guarantee with confidence and certainty, that the standards and quality of its educational provision are being maintained and enhanced”.
An expansive structure has been in place since 2005 to govern and implement QA processes within the state university system. The QAC is the focal point at the UGC that implements external reviews of state universities and institutes. Each university has its own Centre for Quality Assurance (CQA) tasked with performing QA in line with QAC directives. Faculties, in turn, have Internal Quality Assurance Cells (IQAC) performing their own QA; they are answerable to the CQA.
The big question is whether this all-encompassing top-down QA system, that in many ways undermines the internal dynamics of university governance, actually supports universities to enhance the quality of education. This article highlights some concerns.
Top-down check-box activities
The QAC conducts external reviews of universities and degree programmes. A review team appointed by the UGC (who may or may not have experience in the institution/programme in question) examines the self-evaluation report submitted by the said institution/programme. The team then conducts a site visit to verify the claims made in the university’s self-evaluation report, clarify issues identified during the desk review, and examine how QA procedures operate in practice. The team holds meetings with the university administration, members of the Council and Senate, Deans, Heads of Departments, academic and non-academic staff, students, and others. Following the visit, a draft report is submitted to the relevant institution/programme for comment before final publication. The reviewed institution/programme then prepares and publishes an action plan addressing the recommendations, with subsequent monitoring of progress.
There are some worthy QA initiatives under implementation, such as improving facilities for students with disabilities and strengthening mechanisms to address sexual- and gender-based violence. However, for the most part, QA activities have little to do with improving the quality of education. They are mostly preoccupied with monitoring faculty and department websites, digital transformation, student feedback, subject evaluation, course evaluation, peer evaluation, and, more recently, staff appraisal. These activities, which consume an inordinate amount of time—so precious at understaffed universities—have become check-box activities completed to generate evidence for the next review. Below is an excerpt of a conversation between two academics (1 and 2) that conveys how QA plays out at universities (reproduced with permission).
1: … .it’s like social media you know, like posting things on Facebook or twitter or Instagram. When people do a lot of social media, everything they do, they do thinking, “okay I’m going to post it in this way… this I have to put on my Instagram.” QA is a little like that… everything is considered in light of, “ah we can use this for the review, as evidence… for example very recently we were encouraged to have all the things that we do in our department in the faculty newsletter so then they can put in the review. Every little thing has to be noted down….
2: And with pictures and all…
1: At the very least it has to be written so that you have written evidence .. you can’t be doing something for the sake of doing something or because it is good for the department … and sometimes people tell me “oh yea that’s a good idea we can fit that under this x, y section of the review..”
2: Yea, and nobody really thinks about the actual outcome… whether it’s actually helping anyone..
1: I also find that a lot of the words that we used in different ways have now been co-opted to the QA discourse ..including quality.. I can’t actually say what I want as an “outcome”, for example, that the outcome of this workshop is that my students “think about” … then I am told “ah but no that’s not one of the Bloom’s taxonomy words, “think about”.…
2: And the worst part is these medical and agriculture people, these types of people go around spreading it like some kind of gospel!
1: Yea, this cookie cutter way of doing things, they think is the height of innovativeness or creativity, when actually it is so mundane … for me the most awful thing about it is like some fungus of mundanity has taken over through QA reviews.
2: yea, when you say QA, my mind closes off immediately and I stop listening…
Auditing everything but power
QA leaves out crucial aspects of university governance. For instance, there is no review or assessment of the “quality” of university administrations under Criterion 1 or the integrity of procedures governing the promotion of academic staff under Criterion 6 of the institutional reviews.
The majority in the Council—the university’s executive and governing body, which is responsible for selecting the Vice-Chancellor (VC)—are appointed in ad hoc fashion. Apart from the Ex-Officio members in the Council (VC, Deans, etc.), and the two members elected by the Senate, the remainder are appointed by the UGC with no formal consultation or vetting procedure. The VC appointment process described in UGC Circular No. 03/2023 exemplifies how an ostensibly technical process can become entangled in political sycophancy. The Registrar invites applications for the position of VC through advertisement. Applicants must submit a curriculum vitae, a statement of vision for the university and supporting documents. The University Council appoints a three-member Search Committee of senior academics to encourage “eminent persons” to apply, while the UGC appoints a former VC from another university to “observe” the selection process.
A Special Meeting of the University Council is convened. Candidates are interviewed and must make a presentation to the Council Members, followed by questions. Each Council member “gives marks” for seven prescribed criteria: strategic focus (20%), effective leadership (20%), holistic thinking/conceptual skills (10%), academic and research excellence (15%), personal integrity (10%), professional communication (10%) and managerial competence (15%). Marks are averaged, and the Council recommends three candidates to the UGC in rank order. The UGC-appointed observer separately submits a confidential report on the selection process.
This procedure is expected to guarantee quality, but does it? Applications are submitted to the Council Members, who have been appointed on questionable bases, and who are expected to review the applications and give scores, based on objective assessments. But, in reality, most Council Members are manipulated by VC candidates, who often have personal ties with them. The UGC-appointed observer usually has no genuine interest in the outcome. And there is no way for anyone to actually question the Council’s decision once it is made. Although the highest-ranked candidate may ultimately be appointed, the selection remains a political decision made by the President, who retains the discretion to appoint any one of the three.
External reviews also do not look into the promotions of academic staff, except to scrutinise whether there are policies and procedures in place to govern promotion. Academic staff may apply for promotion to Professor once they satisfy the prescribed eligibility requirements, which typically include the period of service, academic qualifications, research and publication achievements, teaching experience, and contributions to the university and wider community. Applications are evaluated against specified criteria, with research output and academic contributions assessed through documentary evidence and expert evaluation. Under the UGC’s scheme for Professors, two experts from outside the applicant’s institution assess specified aspects of research and knowledge dissemination. Again, beneath this technical process, which is externally evaluated, lies a problematic points-based scheme that can be manipulated and abused with impunity.
Rethinking university QA
Like the VC election process and the schemes of promotion for academic staff, QA reviews are open to manipulation. Before a review, there is a chaotic rush to complete evidence gathering and reporting. Academics leave all other work aside, including at times their teaching, to focus on completing documentation and preparing reports. The standardised criteria in the review manuals and scoring sheets often do not reflect differences in disciplines and institutional contexts. But this does not really matter because any serious problems experienced by institutions or programmes are hastily brushed under the carpet to conceal any evidence that could taint the review. The goal is to obtain an A or at least a B grade at whatever cost.
QA may result in positive change if it moves beyond top-down check-box activities towards internally designed and owned processes encompassing all aspects of university governance, led by departments and faculties, and supported by adequate resources. The current QA system needs to be dismantled and replaced by procedures that are accountable, not to the UGC, but to our students and the communities we serve.
(Ramya Kumar is attached to the Department of Community and Family Medicine, Faculty of Medicine, University of Jaffna)
. Kuppi is a politics and pedagogy happening on the margins of the lecture hall that parodies, subverts, and simultaneously reaffirms social hierarchies.
Features
Down Memory Lane — the Grand 20th Edition!
Yes, Down Memory Lane, the beloved Sing-Along concert series that first struck a chord, way back in 1997, returns for its landmark 20th edition this Saturday, 17th October, at the beautiful Bolgoda Grand Resort, Moratuwa town centre.
Having celebrated its glorious 25th anniversary with the show in 2023, this milestone 20th concert promises to be even more special.
The organisers, the ever-popular Moratuwa Arts Forum, are pulling out all the stops to present yet another unforgettable evening, brimming with camaraderie, fellowship, and pure nostalgia.
Get ready for two-and-a-half hours of non-stop singing as veteran vocalists, from the Moratuwa Arts Forum, will take the stage to lead and inspire the happy audience to sing, sing and sing to their hearts’ content.
The repertoire? Absolutely magical, according to the organisers.

Veteran Arun Dias Bandaranaike: Will handle the evening’s proceedings / Priya Peiris: Event Conceptor
Around 40 golden oldies — from timeless English vintage evergreens and hits from the 50s to the 90s, to toe-tapping calypsos, soulful American plantation melodies, rousing cowboy and Dixieland favourites, aa well as cherished Sinhala standards. All to be sung with much gusto!
This year’s dedicated organising committee comprises Brian Coorey (Chairman), Priya Peiris (Event Conceptor), Hiran Fernando, Suranga Fernando, Viranjan Perera, Hemka Fernando and Neelesh Silva. Guidance and support comes from Moratuwa Arts Forum President Sarana Guneratne and Secretary Chandani Silva.
Adding his signature charm to the evening, as Master of Ceremonies, will be the veteran Arun Dias Bandaranaike.
Don’t miss this landmark celebration of music and memories!
For further details, contact Hiran Fernando on 0772636446 or WhatsApp 0783636446.
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