Terms of trade turn favorable again in October after several months – Business News

The terms of trade, the ratio of export prices and import prices turned in Sri Lanka’s favor in October after remaining in unfavorable territory for many months, reflecting that ultimately merchandise exports reach higher prices in line with the boom observed for nearly a year in the world prices of raw materials.

Mirror Business has continuously shown over the past two months that Sri Lanka’s merchandise exports have not been able to make the most of global commodity prices, which have increased this year, due to chain issues. supply linked to the pandemic and consumption demand which increased throughout the pandemic.

According to the latest data, Sri Lanka’s merchandise export volume index rose 9.5 percent in October compared to a year ago, while the unit value index increased by 28, 3 percent, reflecting strong growth in export prices followed by an increase in their volumes during the month over the same month last year.

Sri Lanka’s merchandise exports reached US $ 1.2 billion in October 2021, the highest since March 2019 and the highest for any month, marking the sixth consecutive month of exports of over US $ 1 billion. dollars this year.

Meanwhile, the merchandise import volume index declined 1.6% while unit value indices rose 26.4% in October compared to the same month last year, reflecting to the Both the slowdown in imports in response to the currency crisis and the import bans in place, while at the same time, the rise in prices weighed on the import bill despite the low volumes.

As a result, the “terms of trade, that is to say the ratio between the price of exports and the price of imports, improved by 1.5% in October 2021 compared to October 2020, the increase with export prices exceeding that of import prices, ”the Central Bank said.

The terms of trade are also interpreted as the quantity of import goods, which can be bought by a unit of export goods, and a higher favorable ratio indicates that a dollar value of exports can buy a minimum or dollar value of imports or more.

While mercantilists blame unfavorable terms of trade for a country’s currency and balance of payments problems, neoliberal economists consider such problems to be due to excess money that tackles imports and commodities causing currency problems and inflation, as is the case in Sri Lanka now.

Sri Lanka has many mercantilists who often side with policy makers in influencing policies to make it easier for them to engage in “rent seeking”. They have thrived tremendously over the past two years due to a regressive and introverted mix of policies put in place by the current administration under the pretext of rebuilding a national industrial and entrepreneurial base.

In addition, the reduction in the corporate tax rate that was granted to them when the new administration came to power in 2019 has provided them with a windfall of profits.

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