ECONOMYNEXT – Sri Lanka’s electricity generation has expanded 9.6 percent in the first quarter of 2024 to 1,469 GigaWatt hours, with sales to industry growing 14.3 percent, data published by the central bank shows.
Sri Lanka’s electricity sales has long been a proxy for economic activity and also gross domestic product (value added).
In the first quarter of 2024 the statistics office estimated real GDP to have grown 5.3 percent and nominal GDP 8.3 percent.
In the first quarter of any year, value added (GDP) in electricity is lower than other quarters due to a higher import content, amid dry weather.
Sri Lanka’s electricity generation contracted 12.1 percent to 3,748 GWh in the first quarter of 2023.
Sri Lanka’s first quarter electricity generation based on provisional data has now returned to pre-economic crisis and pre-pandemic levels, though still below 4,203 (revised) data of the crisis year 2022.
In 2021 and early 2022 Sri Lanka’s domestic demand was pushed to almost impossible levels by macro-economists who printed money to suppress rates, in their quest for flexible inflation targeting and potential output targeting.
In the last quarter of 2021 macroeconomists blew a 1.4 billion dollar hole in the balance of payments and in the first quarter of 2022 an 853 million dollar hole in part supported by sterilization of Asian Clearing Union deferred payments from India.
Sri Lanka defaulted on its external debt in peacetime Latin America style, in 2022 after surviving a 30 year civil war, as money was printed to target potential output and high level of inflation under flexible inflation targeting/flexible exchange rate) without a clean float.
The first wave of sovereign defaults in the 1980s also came after IMF’s Second Amendment to its articles left countries without credible anchor and reserve collecting central banks attempted money supply targeting without a clean float.
Sterilizing intervention is also a type of reserve money targeting.
Classcial economists had analysts have said the potential output targeting was conducted by economic bureaucrats violating the then monetary law (which had a stability mandate) but in a new monetary law backed by the International Monetary Fund, printing money for growth and printing money for inflation is legalized.
The central bank has allowed the exchange rate to appreciate in the first quarter of 2024 and undershot its 5 percent inflation target giving a strong stable foundation for economic activity to recover.
Analysts have however warned that as soon as money is printed to push up inflation as private credit recovers, currency instability will worsen and the country will take the first steps to a second default. (Colombo/June22/2024)