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Tuesday September 27th, 2022

Sri Lanka investment goods, non-foods import fall faster than oil bill in April 2022

ECONOMNYNEXT – Sri Lanka’s imports fell 0.5 percent from a year earlier as interest rates were raised and investment goods and non-food consumer goods fell faster than an increase in the oil bill, official data showed.

Sri Lanka’s fuel imports went up by 96 million dollars from a year ago in April 2022 to 510 million US dollars, while investment goods imports fell 87 million US dollars or 24 percent to 266.3 million US dollars.

Building material imports fell 22 percent to 75.6 million US dollars in April and non-food consumer goods imports fell 43 percent to 87.9 million dollars.

Sri Lanka’s exports also grew 18.5 percent from a year earlier to 969.8 million US dollars.

The trade deficit narrowed to 729 million US dollars from 889 million US dollars a year earlier.

In the first four months of the year exports grew 11 percent to 4.2 billion US dollars and imports grew 8.9 percent to 7.3 billion US dollars. Imports are partly driven by credit lines.

Sri Lanka defaulted on foreign loans in April 2022 after printing money for over two years to mis-target interest rates breaking the country’s soft-peg and running out of reserves.

Sri Lanka is hit with the worst currency crisis in the history of the island’s 72-year soft-pegged central bank styled on Argentina’s with ‘counter cyclical’ tools.

While it is easy to destroy the credibility of a peg by mis-targeting interest rates with printed money to boost growth (stimulus), it is difficult to restore the credibility of the peg.

After running out of reserves, it is the usual practice of a soft-pegged monetary authority suspend convertibility (float) to end forex shortages.

However the rupee has collapsed from 200 to 370 levels in a float botched by the surrender rule, which forced dollars to be sold to the central bank making the peg weaker.

Imports are now starting to fall with higher rates aimed at smashing the economy, while the surrender rule and interventions continue making a broken peg and forex shortages persist.

There are no forex shortages in a clean float. (Colombo/June12/2022)

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