Sri Lanka’s imports rose to 1,512 million US dollars, in January 2023 even as exports faltered, official data shows as people got more dollars to spend from tourism.

Exports fell to 0.8 percent from a year ago to 971 million US dollars in January 2024, but remittances grew to 488 million US dollars from 437 million.

In December remittances were 570 million dollars. Sri Lanka also does not settle fuel imports made by new players including Sinopec.

The trade deficit expanded to 541 million US dollars from 445 million as non-Merchandise incomes were spent.

Tourism receipts were estimated to have risen to 342 million US dollars in January from 154 million dollars last year. Outward tourism was estimated at 15 million dollars up from 13 last year.

Computer and IT-related incomes were 43 million US dollars down from 62 million last year, sea transport incomes were 54 million dollars and air passenger incomes were 29 million dollars.

There were 5 million dollars of outflows from stocks. Gross inflows to government securities were 51 million US dollars.

Most private citizens are savers who do not spend all their incomes, and dollar earnings turn into imports when investment credit is given by banks to private borrowers or finances the government.

The BOP goes into deficit, if rates are cut with inflationary domestic operations involving outright or term purchases of domestic assets by the central bank.

The balance of payments was a surplus of 178 million US dollars, compared to 211 million dollars last January.

The BOP goes into surplus if monetary policy is deflationary (the central bank does not suppress rates with inflationary open market operations).

Rising imports also boost tax revenues, helping reduce government borrowings and lower interest rates. Sri Lanka usually controls imports after forex shortages (BOP deficits) emerge from inflationary rate cuts, killing revenues, widening deficits, and which requires high corrective interest rates later.

The import controls and widening deficits are a cascading policy error and loss of economic freedom stemming from ‘monetary policy independence’ given to reserve collecting central banks, critics have said.
 

Source: economynext.