Sri Lanka's foreign-exchange reserves currently look comfortable, as they stand at record levels. In our core scenario, strong inflows of remittances and loans will continue to support the currency, and wide interest-rate differentials with OECD countries will attract portfolio investment. The Sri Lanka rupee will remain fairly strong against the US dollar in 2011-12, contributing to a loss of export-competitiveness. This will generate underlying pressure for depreciation, and we believe that the government will allow the currency to weaken in 2013 once its other inflation concerns begin to ebb. (Depreciation is likely to raise the cost of imports, stoking inflationary pressure.) Given the relative openness of the capital account, there will be a continuing risk in 2011-15 that foreign exchange could suddenly drain away from Sri Lanka should investors lose confidence-for example, if a dispute were to develop between the IMF and the government. In such a scenario, the currency could still lose value suddenly.