ECONOMYNEXT – Sri Lanka’s imports grew 23.1 percent from a year ago to 1,959 billion rupees in January 2022 data showed, with a higher volume of exports and tourism revenues giving more income for people to spend.
Exports grew 17.5 percent to 1,101 million US dollars in January.
Tourism revenues grew 148 million US dollars from just 4 million US dollar, also giving more money for tourism workers to spend on imports.
Analysts had warned that a tourism recovery will not help solve forex troubles which was created by money printed to keep interest rates down and a broken monetary regime (a soft-peg which had lost credibility).
Higher interest rates to stop domestic credit and a float was required. An attempt was made to float the currency in March, which has not succeeded as of April 2022.
Worker remittances fell 61 percent to 259 million dollar.
Remittances are however coming through indirect channels boosting incomes of people allowing them to spend on imports. Imports some of which are not coming in official statistics are also being settled through remittances through Undiyal style unofficial channels.
The trade deficit, a legacy measure which ignores services receipts such as remittances or tourism, 859 million dollars in January, up from 655 million US dollars last.
The trade deficit was expected to grow as soon as tourism resumed.
There was a 36 million US dollar inflows to the stock market, which could also add to the trade deficit if the recipients spent the money, or the government borrowed an spent the money after the sellers of the stocks saved it in a bank.
Foreign direct investment data was not available. However FDI would also add to the trade deficit as the money was spent domestically to build factories or buildings.
The overall balance of payments deficits was 3.9 billion US dollars, around the same as in December.
The government had received 111 million US dollars on loans on a gross basis. A 500 million dollar sovereign bond was paid in January and a 400 million US dollar swap was received to replenish central bank reserves from India.
In order to turn the balance of payments around, reduce imports, the central bank has to raise interest rates to curtail domestic credit and the government has to stop capital projects which are not financed with foreign borrowings. (Colombo/Apr02/2022)