ECONOMYNEXT – Sri Lanka’s imports were recorded at 1.7 billion US dollars in April, helped by incomes from 818 million dollars of exports and 519 million dollars of remittances, as the credit system loaned any savings back to the economy.
The central bank has also been printing money injecting rupee reserves in to the banking system, allowing banks to give loans to areas allowed by interventionists without raising real deposits, potentially driving up investment deemed ‘desirable’ and the resulting imports.
When printed money is loaned in a pegged exchange rate regime, there are no matching dollars to meet the import demand, leading to a reserve loss or pressure on the peg.
Sri Lanka’s April imports, at 1.7 billion US dollars in April was slightly lower than 1,926 million dollars in March.
In March activity tends to go up, in expectation of New Year festival in April. In March commercial bank credit was 130 billion rupees, which fell to 52 billion rupees in April
Exports also fell to 818 million US dollars in April from 1,094 million dollars in March. In April many export factories give leave to workers.
In April the trade deficit was 889 million US dollars, slightly higher than 840 million dollars in 2020.
In the last week of May Sri Lanka went into a lockdown. Lockdowns reduced consumption and investments, which can lead to a fall in credit and imports. Sri Lanka’s central bank bought hundreds of millions of dollars from markets as credit collapsed in the second quarter of 2020.
Analysts had warned that a recovery in credit will lead to imports and forex trouble will come from imports driven by ‘stimulus’ money created by the pegged monetary authority. (Colombo/June18/2021)