ECONOMYNEXT – Sri Lanka’s imports collapsed 30 percent to 1.2 billion US dollars March 2020 amid a Coronavirus crisis, with oil prices plunging, inputs for exports falling, official data show while the central bank said import controls and slower customs clearance also contributed.
Oil imports fell 41 percent to 237 million US dollars, textiles fell 24 percent to 139 million US dollars as apparel exports fell, machinery and equipment fell 39 percent to 130 million US dollars, and building materials plunged 46 percent to 72 million US dollars from 135 million US dollars.
“The selective import clearing process followed by the Sri Lanka Customs (SLC), prioritising essential consumer items and the disruption to other import related services due to the imposition of curfew, disruptions to global supply and logistic chains, lower commodity prices following the COVID-19 outbreak were the main reasons for this unprecedented decline in the expenditure on imports,” the central bank said.
“In addition, urgent measurestaken by the government and the Central Bankin March 2020to ease the pressure on the exchange rate and to prevent financial market panic due to the COVID-19 pandemic, including thesuspension on facilitating the importation of motor vehicles and non essential consumer goods, also contributed to this decline in import expenditure.”
Sri Lanka printed tens of billions of rupees in March, bringing down rates, leading to a collapse of a rupee peg as the central bank did not intervene sufficiently to absorb the rupees, leading to the loss of credibility of the peg and panic covering of import bills.
The central bank then controlled imports. Cars a favourite target for trade controllers after each bout of money printing.
Vehicle imports fell from 72 million US dollars to 39 million US dollars in the month.
Analysts have called for reform of the central bank to stop balance of payments troubles and trade controls that has been dogging the country since it was created in 1951.
The central bank has resisted a credible external anchor for its monetary policy with a ‘flexible’ exchange rate, and avoided a credible domestic anchor with discretionary ‘flexible’ inflation targeting and instead operates regime with a mish-mash of both, critics have said.
In the absence of money printing a fall in export revenues, and tourism, which leads to fall in salaries and profits of the sectors, would automatically lead to commensurate fall in imports.
A credit contraction would lead to an even deeper fall.
Meanwhile exports fell 40 percent to 531 million US dollars in March, with textiles and apparel falling 41 percent to 312 million US dollars, rubber down 34 percent to 54.5 million US dollars, tea down 50 percent to 62.5 million US dollars.
Tourism earnings were down 70 percent to 135 million US dollars.
The trade deficit for March was down to 549 million US dollars from 592 million US dollars a year earlier.
In the first quarter of 2020, exports were down 16 percent to 2.65 billion US dollars, imports were down 6.5 percent to 4.5 billion US dollars and the trade deficit rose to 1.8 billion US dollars from 1.66 billion a year earlier. (Colombo/June01/2020)