ECONOMYNEXT – Sri Lanka’s imports jumped US $ 1.96 billion in March 2021, up from US $ 1.52 billion in February, as exports and domestic credit rebounded, despite mercantilist import controls, according to official data.
“Despite continued import restrictive measures, spending on merchandise imports increased significantly in March 2021 to reach US $ 1,926 million, the highest monthly import value since March 2018,” said the central bank.
“As a result, import spending in March 2021 was significantly high compared to spending of US $ 1,205 million recorded in March 2020 and US $ 1,524 million in February 2021. All major import sectors have contributed to this increase. “
Analysts had warned that imports would increase as credit to private and state-owned companies picked up and import controls were a mercantilist mistake.
Private credit rose to 79.4 billion rupees in February from 25.7 billion in January and rose further to 112.2 billion rupees in March. In March, imports generally increase due to the upcoming New Years season.
However, when credit is financed with printed money, currency shortages and balance of payments deficits occur.
Lending to state-owned enterprises, typically a type of consumer credit typically taken to fix the prices of oil and electricity as part of a political and bureaucratic obsession with fixing retail prices, has also directly affected the exchange rate.
Private and public credit increased from 81.1 billion rupees in January 2021 to 101.3 billion rupees in February and 130.6 billion rupees in March.
Private sector and state-owned enterprise credit was also Rs 133.3 billion in March 2018, when the central bank said imports last hit that level.
As the central bank began printing money as part of a production targeting exercise, triggering a currency crisis that pushed the exchange rate to 182 by the end of the year, requiring monetary tightening (also known as stop-go policies) killing an emerging economic recovery.
In March 2019, credit from private and state-owned enterprises jumped to Rs 156 billion, in part due to panic coverage of imports due to a so-called “ flexible exchange rate ” episode where the currency is allowed to drop quickly and importers panic to cover import bills quickly.
The central bank said imports of consumer goods rose 42 percent from the previous year to $ 379.2 million, intermediate goods rose 61.5 percent to $ 2.5 billion, and capital goods rose 75.8% to $ 416.5 million.
Sri Lanka has a high savings rate of around 20%, which analysts say makes it easier to maintain a high exchange rate and collect foreign reserves. Savings become imports, usually through investment credit and consumer credit from public energy companies.
Exports increased 66.7% to $ 1,093 million. Exports also give residents more money to spend on imports, but do not undermine the exchange rate or change the trade deficit.
Remittances also give more money to import goods without harming the exchange rate, but this will show up as a gap in trade in goods.
The central bank said the trade deficit rose to US $ 832 million in March 2021, from US $ 549 million in 2020.
(Colombo / May 19/2021)