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Thursday May 23rd, 2024

Sri Lanka services surplus exceeds trade deficit in Feb 2024: analysis

ECONOMYNEXT – Sri Lanka has posted a services account surplus of 400 million US dollars in February 2024, higher than a trade deficit of 319 million US dollars, central bank data shows.

Sri Lanka’s exports in February 2024 was 1,059 million US dollars, up 7.9 percent from 982 million dollars a year ago while imports surged 35 percent to 1,378 million US dollars, giving trade deficit of 319 million dollars.

Academics, politicians and many commentators rail against trade deficits, claiming it leads to currency depreciation or that it is a ‘problem’ of some kind, regressing back to classical mercantilism.

However no foreign shipper will actually send goods to Sri Lanka without being paid in dollars, except for short term suppliers’ credit. Sri Lanka’s petroleum ministry has asked new petroleum distributors to delay payments for one year.

The dollars have to be earned in some way to spend on imports.

The trade deficit is triggered when people spend income from tourism, IT services and worker remittances, or when government borrowings to finance infrastructure, none of which create any pressure on the currency.

Services inflows for February were calculated at 593 million dollars for February, and outflows 193 million dollars, giving a services account surplus of 400 million US dollars (before any errors and omissions).

Worker remittances were another 476 million dollars.

Modern ‘economists’ usually rail against the ‘current account’ deficit, claiming that it leads to currency depreciation or that it is a ‘problem’ of some kind in a neo-Mercantilist revision of the classical idea.

The central bank is has started releasing broader balance of payments data from February 2024, which can help bust mercantilist myths, dating back to the 17th century, before classical economics was devised by the likes of Adam Smith and David Ricardo.

In most countries current account deficits are mostly driven by government borrowings, which are invested or spent domestically. Countries like the US, which receive large volumes of FDI may also have current accounts driven by private flows.

Third world countries with bad central banks also have capital controls, which means domestic savers cannot invest abroad, therefore private citizens cannot contribute a current account surplus by investing out.

Therefore, outward financial payments take place through central bank reserve collection or government debt repayments.

Countries with third world countries when governments borrow abroad, with private parties being blocked from investing out due to exchange controls.

In countries with depreciating central banks, where domestic lifetime real savings are destroyed by currency depreciation and governments usually borrow abroad, despite 20 percent plus private savings rates.

Currencies weaken due to balance of payments deficits triggered from central bank domestic operations to cut rates artificially through inflationary open market operations and standing facilities or both.

Inflationary open market operations to mis-target rates makes it impossible to make outward payments including to repay debt, leading to defaults.

To repay debt or collect reserves, domestic investments have to be curbed at an appropriate rate, which cannot be done if money is printed to cut rates claiming inflation is low, through spurious monetary doctrines involving anchor conflicts, critics say.

To run a balance of payments surplus, domestic operations of a note issue bank has to be deflationary involving a net sell down of domestic assets of the central bank at a required market rate.

Up to February Sri Lanka’s central bank ran a 317 million US dollar balance of payments surplus with the help of deflationary policy and also allowed the currency to appreciate.

Third world bad-money central banks usually do not allow currencies to appreciate even when deflationary policy is in play, in the inflationist-devaluationist belief that debasement help exports, despite overwhelming evidence from East Asia that it is long term monetary stability that helps drive foreign and local investments to build the required capacity and know-how.

Most East Asian reserve collecting central banks run consistently deflationary operations, selling their own securities (Bank Negara Bills, MAS Bills, HKMA Exchange Fund bills and notes) to mop up inflows instead of conducting inflationary open market operations with government securities and scapegoating budget deficits under flexible inflation targeting and similar dual anchor regimes to mis-target rates critics say. (Colombo/Apr10/2024 – corrected Third world countries with bad central banks also have capital controls, which means domestic savers cannot invest abroad)

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Sri Lanka plans to expand Bingiriya export zone to 1,100 acres

ECONOMYNEXT – Sri Lanka is expanding an export processing zone in Bingiriya in Kurunegala and plans to link the area with Puttalam with roads and other infrastructure, Minister Bandula Gunawardana said.

A task force of ministerial secretaries will be appointed to carry out the tasks speedily, following a cabinet paper submitted by President Ranil Wickremesinghe said.

The Bingiriya zone already has 157 acres and another 282 acres is being developed by the Board of Investment, he said.

Steps would also be taken to acquire 666 acres.

There was no information whose lands would be acquired. (Colombo/May23/2024)

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Sri Lanka has power breakdowns amidst extreme weather

ECONOMYNEXT – The state-owned power utility, the Ceylon Electricity Board has reported over 36,900 breakdowns resulting in power interruptions to more than 300,000 consumers in the last three days due to inclement weather in the island, the power minister said.

“Additional service staff has been assigned to attend the breakdowns and the CEB management & service staff are working 24 hours to restore power to the affected consumers,” Minister of Power and Energy, Kanchana Wijesekera said on social media platform X (twitter).

Wijesekera said consumers could report power interruptions through the CEB hotline 1987, via SMS to 1987 with BD and the electricity consumer number to follow, or use the CEB Care app, or through http://cebcare.ceb.lk.

The South-East monsoon has seen floods, landslides and strong winds do damage to the utility provider’s infrastructure in the last week. (Colombo/May23?2024)

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Sri Lanka President calls for unity, sacrificing for a better tomorrow on Vesak day

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has recalled a sermon from the Buddha about sacrificing for a better tomorrow, and called for unity to heal and rebuild the country, as Buddhists celebrate Vesak.

Buddhists celebrate Vesak as commemorating the birth, enlightenment and passing away of the Buddha.

“At this challenging moment, we as a nation should cultivate the same great zeal for enlightenment that Buddha exemplified, inspired by his sermon, “Maththasukha parichchaga- passé che vipulan sukhan” – to sacrifice today for a better tomorrow,” President Wickremesinghe said in his Vesak day message.

“We must remember the advice of Lord Buddha, “Sabbattha Sammanaso,” to treat everyone equally and ensure we put it into practice as a country. This is the greatest offering we can present to the Buddha on this Vesak day.

“Regardless of race, religion, caste, or political affiliation, we must all unite to heal and rebuild our country. ”

The full statement is reproduced below:

The Vesak festival is a profoundly sacred day for Buddhists worldwide, commemorating the Buddha’s birth, enlightenment, and passing. Buddhists in Sri Lanka, along with their brethren around the globe, celebrate Vesak with deep devotion. They spend this period engaging in religious observances and venerating the Buddha with fervent devotion.

At this challenging moment, we as a nation should cultivate the same great zeal for enlightenment that Buddha exemplified, inspired by his sermon, “Maththasukha parichchaga- passé che vipulan sukhan” – to sacrifice today for a better tomorrow.

We must remember the advice of Lord Buddha, “Sabbattha Sammanaso,” to treat everyone equally and ensure we put it into practice as a country. This is the greatest offering we can present to the Buddha on this Vesak day. Regardless of race, religion, caste, or political affiliation, we must all unite to heal and rebuild our country. The principles of Lichchavi Raja Dharmaya will guide us in this endeavour.

Let us keep in mind that the primary aim of the Vesak festival is to foster spiritual growth and character development in a world rapidly advancing physically. I wish everyone a blessed Vesak festival.

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