ECONOMYNEXT – Sri Lanka’s merchandise exports soared 24.17% to US$12.47 billion in 2021, official data shows, as the country is mired in the worst currency shortages in recent memory, dragged down by printed money to maintain fixed interest rates.
“The hard work and commitment of industrialists along with the government’s decision to quickly vaccinate the country’s workforce has started to pay off,” Trade Minister Bandula Gunewardene was quoted as saying by the Development Council. exports from Sri Lanka.
Strong export growth and worsening foreign exchange shortages shattered mercantilist claims that a higher level of exports and a “production economy” would solve the country’s monetary problems, created by the discretionary independence granted to the central bank to print money.
Analysts using classical economic principles had warned that increased exports would lead to increased imports as the recipients of the money would spend them on goods and services, although this would not cause any currency problems.
However, if money were printed to pay workers in the expanding public sector or for any other purpose, the currency would be under pressure and reserves would be lost, even if exports increase.
As of December 2021, Sri Lanka’s merchandise exports increased by 16.71% year-on-year to US$1,125.69 million. This was also a 12.48% increase from 2019.
Imports in December were estimated at US$2.2 billion after two months of sterilized interventions (giving foreign exchange reserves to the central bank for imports and printing an equal or greater amount to keep rates low) as well as income from services and remittances.
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Sri Lanka’s exports had increased in 2021 partly due to higher world prices, driven by money printing in the United States. The Fed said it would stop printing money in March after inflation hit a 40-year high.
Domestic demand in the US and EU has increased artificially with liquidity injections and stimulus checks without accompanying production (an aggregate demand bubble), leading to supply chain bottlenecks in the world and high prices.
The Fed then falsely claimed it was “transitional”, but later admitted it was to blame.
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In Sri Lanka, amid record imports driven by investment and intermediate goods, low interest rates and a credit recovery, foreign exchange shortages have worsened as the country experiences import disruptions fuel and other imports.
In Sri Lanka, garment and textile exports increased by 22.93% to reach US$5,415.92 million in 2021.
Exports of garments by 25.7% and woven fabrics increased by 99.84% while exports of made-up textile articles fell by 44.81% and yarns and other textile articles fell by 8.16% .
Tea export earnings increased by 6.72% to $1,324.38 million during the year.
Exports of all tea sector subcategories increased with tea bags up 10.11%, loose tea up 2.47%, tea bags up 84.07%, instant tea 19.46% and green tea 22.79%.