ECONOMYNEXT – Sri Lanka’s imports have fallen below key current inflows for the third month in a row in August 2022, as domestic credit turned negative, official data shows.
Sri Lanka’s imports in August fell 11.9 percent from a year earlier to 1,486 million US dollars, though picking up from July while exports grew 11.2 percent to 1,224 million US dollars.
The trade deficit fell to 261 million US dollars in August from 586 million US dollars as financial account inflows and money printing also reduced.
A trade deficit is driven by dollar inflows over and above export income such as remittances. A current account deficit is driven by foreign borrowings.
Imports will generally go up as remittances and tourism receipts improve. However since most members of the public are net savers, bank credit has to be strong to turn savings in to imports.
Sri Lanka’s bank credit has now turned negative.
The total of exports and remittances has been above imports since June, in the style of surplus on the main two current account inflows.
In June the total of exports and imports was 1,522 million US dollars, outpacing imports of 1,226 million US dollars.
In July the total of imports and remittances were 1,444 million US dollars, against imports of 1,287 million US dollars.
In August imports were 1,486 million US dollars against the total of exports and remittances of 1,549 million US dollars.
However banks also have to repay foreign credits while the government has to keep repaying multilateral lenders. When the financial account turns negative a current account surplus is created.
An overall balance payments deficit (and pressure on the currency) is created by central bank money printing in a pegged exchange rate.
The central bank ran out of reserves in the first quarter but has been intervening with money deferred by the Reserve Bank of India up to June.
Key falls in imports have come from investment goods, 39.5 percent to 212 million dollars in August from 351 million US dollars a year earlier.
Non-food consumer goods also fell 55 percent from 205 million US dollars to 91.5 million dollars. Some goods, especially consumer durables are also under import controls. (Colombo/Oct09/2022)