Sri Lanka BOP deficit tops US$2.0bn by October, imports exports slows

ECONOMYNEXT – Sri Lanka’s exports fell 13.2 percent in October 2020 from a year earlier, imports fell 24.9 percent and the balance of payments deficit topped 2,0 billion US dollars in the 10 months to October from a surplus of 667 million dollars last year, official data shows.

Sri Lanka’s tourism receipts have stopped reducing domestic spending power, while the government is has also become a net re-payer of foreign loans reducing imports, despite money printing most of which has flowed out of the financial account, rather than trade account amid weak credit.

Sri Lanka’s foreign financed budget deficit is the major driver of the trade deficit and the current account deficit analysts have said. Foreign financed budget deficits and foreign direct investment, while driving the current account gap, does not push the rupee down, unlike money printing.

Related: Trade deficits caused by foreign borrowings; Harvard economist at Sri Lanka forum

Sri Lanka recorded a balance of payments deficit of 2,083 million dollars by October 2020, central bank data shows, amid debt repayments and a run-down of foreign reserves.

In a modern soft-pegged central bank where there are no domestic gold outflows, the BOP always balances and a gold-standard era terminology of a ‘BOP deficit’ is used despite the outflow being matched b ‘below the line’ by sales of dollar securities in the country’s reserves.

In 2020 however Sri Lanka also sold some gold. Sri Lanka’s central bank has generally made the right calls on gold trading.

Sri Lanka also entered into a billion US dollar repo with the Federal Reserve in September to get liquidity against US bonds in its reserves.

In the ten months to October exports fell 16.7 percent to 8,293 million dollars and imports fell 24 percent to 13.14 billion US dollars. The trade deficit fell to 4.8 billion US dollars from 6.4 billion US dollars.

In the month of October Sri Lanka exports slowed to 848 million dollars in October 2020 down 13.2 percent from a year earlier amid an upsurge in Coronavirus, while imports were also down 24.9 percent from a year earlier to 1,363 million dollars, data show.





In October the trade deficit narrowed to 4.8 billion US dollars from 6.4 billion US dollars.

Remittances have also grown 3.9 percent to 631 million dollars.

Industrial exports were down 16.9 percent to 633 million dollars in October 2020, with apparel down 20 percent to 325 million dollars.

Plastic products rose 582 percent to 42.6 million dollars with personal protective equipment, the central bank said. Rubber products grew 10.8 percent to 77.9 million dollars.

Tea exports were down 1.4 percent to 112.2 million dollars and coconut exports were up 23 percent to 32.5 million US dollars.

Consumer goods imports were down 34 percent to 251 million dollars, vehicles were down 99 percent to 0.5 million dollar, pharmaceuticals were down 4.3 percent to 51.9 million US dollars, home appliances were down 12.5 percent to 16.8 million dollars.

Telecom devices were down 41 percent to 15.1 million dollars.

Fuel imports were down 27 percent to 223 million dollars, textile and apparel were down 21 percent to 218 million dollars and wheat was down 17 percent to 24 million dollars.

Investment goods were down 24 percent to 293 million US dollars. (Colombo/Dec15/2020)

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