Sri Lanka’s imports resume in January 2021 amid credit recovery





ECONOMYNEXT – Sri Lanka’s imports jumped to US $ 1,592 million in January 2021, with credit and economic activity picking up to their highest levels since a coronavirus slashed tourism revenues from around February 2020, according to reports. official data.

Sri Lanka’s imports were up from US $ 1,527 million in January, but were down $ 1.73 billion the year before, according to central bank data.

Sri Lanka’s imports are still declining from around US $ 1.7 billion to US $ 1.8 billion before the coronavirus pandemic, where tourism receipts were strong, although exports are fairly stable and remittances higher.

Imports into Sri Lanka cause residents to spend the income they earn from exports, remittances, tourism receipts, and foreign borrowing, usually by the government.

As private recipients of foreign income typically save, marginal imports are driven by credit from the banking system, which can go to the government (which dissavs) or to private borrowers who invest in fixed assets or durable goods.

After a coronavirus lockdown in March 2020, imports fell due to the credit collapse and consumer contraction.

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Mercantilism

In Sri Lanka, where mercantilist beliefs are prevalent and are also taught in schools, authorities have slapped import controls, although analysts using classical economic theory have warned that imports will resume once credit is recovered. because the money is fungible will go into the authorized areas.

Imports driven by government borrowing and foreign direct investment generate what Keynesians / mercantilists call the “current account deficit” since other types of income are classified in the current account itself.

Credit to SOEs, usually to finance losses in energy utilities, tends to hit the entire forex market in the first round, putting pressure on currencies.

Sometimes the CPC is forced to borrow losses, manage an unhedged foreign exchange position, and worsen the country’s “current account deficit” with dollar borrowings.

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However, a country can have a “balance of payments deficit” and experience pressure on currencies when the central bank prints money and places additional purchasing power in the hands of the government or the public.

In January 2021, imports were US $ 1,592 million compared to US $ 1,735 million in 2020, according to central bank data with negligible tourism revenues.

Exports fell 8 percent to US $ 924 million and remittances increased 16.3 percent to US $ 675 million. Tourism revenue (which is based on a survey by tourism authorities) was 3 million below $ 431 million in January 2020.

Imports of consumer goods fell 7% to US $ 345 million in January 2021. Intermediate goods fell only 2.1% to US $ 915 million.

Capital goods fell 22.9% to 330.1 million US dollars.

In 2020, the government was a net payer of foreign loans, which could reduce the current account deficit.

Although the banks bought record volumes of treasury bills instead of extending private credit, some of the loans had been repaid not with resources from the sale of treasury bills, but by printed money from failed banknote auctions taken out with central bank credit, in order to keep rates low.

As a result, the central bank’s credit had to be covered by foreign exchange reserves to prevent the rupee from falling.

Sri Lanka recorded a “ balance of payments deficit ” of US $ 2.3 billion in 2020.

In January 2020, Sri Lanka recorded a “ balance of payments deficit ” of US $ 690 million, according to the data. (Colombo / March 11, 2021)




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