Sri Lanka imports up 24.5% in October 2021 amid printing money and credit


ECONOMYNEXT – Sri Lanka’s imports increased 24.3% from the previous year to reach US $ 1,693 million in October 2021, despite trade controls, amid a recovery in private credit and exports, according to official data.

Exports rose 40.4% to $ 1.2 billion, a trade deficit of $ 495 million, from $ 509 million a year earlier.

As of October, total exports stood at $ 10.13 billion, up 22.1% from the previous year.

Imports amounted to US $ 16.6 billion, up 26.5% from the previous year.

The trade deficit through October was US $ 6.4 billion, down from US $ 4.8 billion a year earlier.

A trade deficit is usually due to inflows of dollars from sources of goods other than merchandise, such as remittances, software exports, and tourism, which are spent by recipients.

A current account deficit arises when foreign borrowing and foreign direct investment are invested in the country.

Since the private sector is a net saver, foreign income must be loaned in the form of bank credit for investment of the consumption system for all dollar inflows to generate imports.

Imports in excess of inflows can also be driven by printed currency (central bank credit) which causes outflows to exceed inflows and creates “currency shortages”, putting pressure on a loose parity with the US dollar. and triggering a balance of payments deficit.

Sri Lanka had banned imports of large numbers of goods and promoted “import substitution,” a failed strategy in Latin America, caused by currency shortages from bad central banks.

Similar strategies were also taught at Anglo-American universities in the 1960s, when money printed to suppress interest rates created currency shortages.

As early as 1966, classical economists pointed out to authorities in Sri Lanka that as long as money is printed (inflationary policy is followed), import controls cannot solve balance of payments problems.

“…[B]Payment difficulties cannot be resolved by stepping up tight exchange controls and import restrictions; nor by expanding domestic production expansion programs to replace imported products – the so-called measures to ‘save’ foreign exchange, ”BR Shenoy, a classical economist, said in a report to the Ceylon government from the time.

“Intensifying tight exchange controls and import restrictions can reduce the amount of imported goods entering the market.

“It cannot reduce the flow of money seeking to buy goods, whether for consumption or for investment. This cash flow is determined by the national product and the inflationary part of the net operating cash flow deficit.

Total non-oil imports up to October 2021 stood at US $ 13.65 billion, up 23.9% from the previous year, and higher than US $ 16.4 billion in before the 2019 pandemic, despite the lack of tourism income.

In December, Sri Lanka raised fuel prices, which will generally reduce non-oil imports as long as money printing is stopped.

Imports were on the rise despite controls on items like cars – which result in high levels of taxes per dollar spent – and items that interventionist mercantilist bureaucrats dislike.

However, machinery and equipment (a type of capital goods that mercantilist interventionists adore) rose 27.4 percent to US $ 2.25 billion, more than the pre-crisis $ 2.03 billion. 2019 pandemic.

Imports of building materials stood at US $ 1.0 billion, slightly less than the $ 1.2 billion before the pandemic. (Colombo / December 22/2021)


Source link

Previous IMM Online becomes the first European platform for connecting SMEs and young tech specialists
Next Researchers fear growing hesitation over COVID vaccine in developing countries