ECONOMYNEXT – Sri Lanka’s import surge continued in November 2021, with investment goods rising 40 percent to 433 million US dollars, central bank data showed, amid low interest rates and sterilized foreign exchange interventions.
The trade deficit fell for the third straight month, as low rates and liquidity injections pressured a peg on which credibility has been lost.
Imports up to November 2021 were 18.39 billion US dollars, up 26.6 percent from 2019 when lockdowns hit credit and consumption but higher than the 18.15 billion US dollars of the pre-pandemic 2019.
The total up to November is lower than the money printing and sterilized intervention year of 2018, when 20.4 billion US dollars of imports came up to November.
Consumer goods were up 11.6 percent to 3.42 billion US dollars but lower than the 3.5 billion US dollars in November and 4.6 billion dollars in the money printing year of 2018.
In addition to domestic money printing and low rates, total import are also driven by the rise in global prices driven by US money printing and a rise in exports which are also seeing price rises.
Fuel imports grew 43 percent to 3.3 billion US dollars, but down from 3.5 billion dollars in 2019 and 3.8 billion dollars in 2018.
In November Sri Lanka posted a trade deficit 553 million US dollars down from 600 million US dollars, and sharply down from 762 million US dollars in 2019 and 785 million dollars in 2018.
Exports were up 54.6 percent to 1.2 billion US dollars in November. Full year exports were up 24.9 percent to 11.3 billion US dollars.
The trade deficit fell for the third straight month. Import prices are starting up pick up, but the a so-called terms of trade, a Mercantilist measure showed export prices have grown faster.
Sri Lanka Mercantilism is widespread and there is a belief that forex problems are caused by the trade deficit and imports and not liquidity injections.
Sri Lanka is facing severe forex trouble due to low interest rates enforced by liquidity injections, a recovery in private credit amid a high budget deficit, and a ratcheting up of sterilized interventions from late October. (Colombo/Jan25/2021)