ECON0MYNEXT – Sri Lanka’s imports fell 24 percent from a year earlier to 1,294 million US dollars in July 2020, central bank data showed, amid a credit contraction and import controls imposed after unprecedented money printing triggered forex shortages in March 2020.
Exports grew 8.7 percent to 1,085 million dollars in July 2020 and the deficit contracted to 209 million US dollar from 717 million dollars last year.
Sri Lanka’s imports usually contract as consumption and private credit fall after a currency crisis, shrinking economic growth, but in 2020, severe import controls not seen since the collapse of the Bretton Woods system of soft-peg in 1971 had been imposed.
Sri Lanka has highly unstable soft-peg set up in the style of Latin America style central banks by Federal Reserve officials inspired by Argentina central bank creator Raul Prebish and Robert Triffin leading to severe monetary instability.
Many countries with Prebish-Triffin style central banks have ended up in sovereign default amid output shocks and currency collapses.
In July consumer goods fell 18.7 percent to 289 million US dollars, with non-foods falling 35 percent to 159.4 million US dollars.
Vehicle imports fell to just 6.1 million US dollars from 95.4 million US dollars a year earlier. It is not clear how much import controls are contributing to the credit collapse.
Telecom device imports surged 75 percent to 45.6 million US dollars amid Coronavirus pandemic and work from home.
Intermediate goods fell 24 percent to 734 million US dollars. Fuel imports were down 36 percent to 200 million US dollars.
Textile imports, which are usually an export input fell 20 percent to 197 million dollars.
Investment goods fell 31 percent to 269 million US dollars.
Exports grew 3.8 percent to 819.4 million US dollars with food and beverages p 75 percent to 64.3 million dollars rubber products up 7.8 percent to 82.2 million US dollars and textiles and garments down 8.8 percent to 404.3 million US dollars.
Earnings from tourism were listed as zero. Worker remittances were up 12.2 percent to 702 million US dollars.
While imports usually fall when there is a credit contraction, the fall in tourism receipts should also reduce imports as workers lose income, in the absence of money printing.
Sri Lanka has a merchandise trade deficit partly due to spending remittances as well as financing a part of the budget deficit through foreign borrowings. There is a current account deficit due to foreign financing of the budget deficit and foreign direct investment.
However net repayments of debt will tend to narrow and could also reverse a current account deficit.