An Echelon Media Company
Wednesday December 8th, 2021

Sri Lanka imports top three year high by Aug 2021 amid money printing

ECONOMYNEXT – Sri Lanka’s imports hit 1.68 billion US dollars in August 2021, amid record money printing the highest since 2018 when money was also printed losing forex reserves, data show.

The surge in imports came despite import controls.

Up to August imports were 13.4 billion rupees, up from 10.25 billion rupees in 2020 and also up from 12.88 billion rupees in the pre-pandemic 2019.

In 2019 the central bank did not print money until August and collected forex reserves running deflationary policy. Imports were 15.0 billion rupees up to September in 2018.

Imports grew in 2021 despite controls.

Mercantilist Hot Buttons

Imports of cars, gold and the latest Mercantilist hot button, fertilizer were almost non-existent. Fertilizer imports were down to 0.9 million dollars from 32 million dollars from the pre-pandemic year of 2019.

Sri Lanka’s politician gave subsidized fertilizer to win votes promoting over-use and waste. Interventionists have suddenly banned fertilizer completely without any consultations and evidence based policy formulation throwing farming into a crisis.

With exports 7.9 billion US dollar up to August, up 22.6 percent, the trade deficit was 5.5 billion US dollars, up from 3.8 billion dollars in 2020.

Sri Lanka has a trade deficit due to domestic agents spending non-merchandise related inflows like remittances, IT and tourism reciepts. Sri Lanka has a current account deficit due to foreign financed investments like foreign direct investment and foreign financed budget deficits.

However the currency falls, and there is balance of payments deficit (a fall in net international reserves) when money is printed, pushing outflows above inflows.

Up to August vehicle imports were 7.8 million dollars, down from 280.8 million dollars in 2020, and 496.4 million dollars in 2019 when the central bank did not print money until the last quarter.

Though there were hardly any vehicles imported, money flowed into other ‘permitted’ sectors favoured by control-oriented bureaucrats.

Analysts had warned that imports will pick up as domestic credit and economic activity picked up.

Economist B R Shenoy as early as in 1966 explained the futility of import controls and the actual cause of payments problems, which started after a money printing central bank was set up in 1950.

“..Balance of Payments difficulties cannot be solved by intensifying the rigorous of exchange control and import restrictions; nor by extending the schemes for expanding domestic production to substitute import goods — the so called measures for “economising” on foreign exchange,” Shenoy wrote.

“Intensification of the rigorous of exchange control and import restrictions may reduce the quantum of import goods flowing into the market. It cannot reduce the flow of moneys seeking to purchase goods, either for consumption or for investment.”

“This flow of money is determined by the national product and the inflationary part of the Net Cash Operating Deficit,”

“The remedy to this problem lies in putting a stop to inflationary financing, not in tampering with the normal course of international trade.”

Economists and analysts have called for central bank reform or a its abolition to a currency board for many years to stop high inflation, currency depreciation, output volatility and social unrest.

Leave a Comment

Your email address will not be published. Required fields are marked *

Your email address will not be published. Required fields are marked *


Leave a Comment

Your email address will not be published. Required fields are marked *

Your email address will not be published. Required fields are marked *