ECONOMYNEXT – Sri Lanka’s imports fell 111 million US dollars to 1.68 billion in October 2015 from a year earlier and the trade gap narrowed 57 million dollars to 791 million dollars as the rupee came under further pressure, shattering long held Mercantilist beliefs.
Exports also fell 54.5 million US dollar to 901.8 million US dollars amid lower commodity prices, central bank data showed.
The rupee came under further pressure in October as credit soared amid money printing.
The falling imports and narrowing trade gap makes nonsense of Sri Lanka’s mainstream Mercantilist false doctrine that the currency falls due to a trade deficit.
Currencies fall when central banks print money to finance the budget or keep interest rates down. Import will go up when exports go up, when remittance go up, tourism earnings go up, or foreign borrowings go up expanding domestic spending power, without hurting the currency.
Sri Lanka’s imports have fallen mostly due to lower levels of net government borrowing in 2015 which has caused inflows through the financial account to narrow as well as due to falling exports, which reduces spending power.
Imports would have fallen further and the currency would not have moved if no money was printed, analysts say. Sri Lanka’s currency troubles only began after a 1951 when a money printing central bank was created.
The rupee collapsed from 131 to 144 to the US dollar in 2015.
In the first 10 months of the year, exports fell 3.9 percent to 8.8 billion US dollars from a year earlier and imports fell 1.2 percent to 15.77 billion US dollars.
Worker remittances rose 1.7 percent to 5.78 billion US dollars, gross inflows to the government was down 9.7 percent to 4.1 billion US dollars from 4.6 billion US dollars of which 1.5 billion US dollars came in October from a sovereign bond. The actual dollars were converted in November.
The central bank had also sterilized around 800 million dollars to re-build reserves during in November, data showed.