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Tuesday May 21st, 2024

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.

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Sri Lanka declares May 21 as National Mourning day over Iranian President’s death

ECONOMYNEXT – Sri Lanka declared a national mourning day on Tuesday, May 21 in view of expressing its solidarity with Iran after sudden death of Iran President Ebrahim Raisi following a helicopter crash.

President Raisi and eight others including Iranian Foreign Minister Hossein Amir Abdollahian were killed in the crash when the helicopter had a “hard landing” reportedly due to adverse weather conditions with heavy fog. However, President’s two convoy helicopters reached the destination safely.

“The Sri Lankan government has declared a national mourning day on tomorrow (May 21) on behalf of the sudden death of Iranian president Mr. Ebrahim Raisi,” the Department of Government Information said in a statement.

It also urged all the state institutions have to hoist the national flag half mast.

Raisi was in Sri Lanka on April 24 to launch the Uma Oya dam on a one-day official visit amid tight security. His helicopter crashed when he was returning to Iran after launching a dam in the Azerbaijan border.

President Raisi is seen as a hardliner and a potential successor to Supreme Leader Ayatollah Ali Khamenei.

Earlier this month, Sri Lanka’s Foreign Minister Ali Sabry said the island nation will deal with Iran for investments and trade without being caught into the United States-led sanctions.

Sri Lanka was unable to receive $450 million from Iran for a recently opened Uma Oya multipurpose project started before the sanctions.

Sri Lanka now exports tea to Iran for no dollar payment. Instead, Sri Lanka tea producers are paid by the state-owned Ceylon Petroleum Corporation (CPC) in rupees for the pending crude oil import payments for Iran.

President Ranil Wickremesinghe expressed his condolences on the tragic incident.

“Sri Lanka is deeply shocked and saddened by the tragic death of President Ebrahim Raisi, Foreign Minister Amir Abdollahian and other senior Irani official,” he said in his official X-platform.

“I express my deepest sympathies and sincere condolences to the bereaved families, the government and the people of Iran.”

Raisi, a Muslim jurist, served as the eighth president of Iran from 2021 until his death. (Colombo/May 20/2024)

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Sri Lanka helps launch Global Blended Finance Alliance

ECONOMYNEXT – Sri Lanka has joined a group of nations led by Indonesia which aims to mobilise capital to achieve carbon neutrality, Minister of Water Supply and Estate Infrastructure Jeevan Thondaman said.

The Global Blended Finance Alliance mooted by Indonesia in 2018, was formally launched at the World Water Forum in Bali today.

Among the other founding members are Fiji, France, UAE, Kenya, Luxembourg and Canada.

“Through our collective efforts, the Global Blended Finance Alliance aims to mobilise both public and private capital to help nations achieve carbon neutrality and the SDGs,” Thondaman said on social media platform X (twitter).

“The world has a USD 2.5 trillion funding gap to achieve the Sustainable Development Goals (SDGs) by 2030,” he said.

Blended finance is the strategic use of development finance, such as public and/or philanthropic funds, for the mobilisation of additional commercial finance towards sustainable development in developing countries. (Colombo/May20/2024)

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Sri Lanka rupee closes slightly stronger at 299.60/75 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee appreciated slightly to close at 299.60/75 to the US dollar on Friday, from 299.70/80 the previous week, dealers said. Bond yields were up.

A bond maturing on 15.12.2026 closed up at 10.15/35 percent from 10.05/15 percent.

A bond maturing on 15.09.2027 closed up at 10.45/55 percent from 10.25/40 percent.

A bond maturing on 01.07.2028 closed at 10.80/90 percent.

A bond maturing on 15.01.2030 closed at 11.70/80 percent.

A bond maturing on 01.10.2032 closed up at 11.90/12.05 percent from 11.85/12.00 percent. (Colombo/May20/2024)

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