Economy Next – Sri Lanka’s current foreign exchange earnings from exports, remittances and services totaled US$2016 million, exceeding imports of US$1,404 million by US$611 million in May 2024, official data showed.
Sri Lanka’s exports amounted to $1,011 million in May, remittances amounted to $460.1 million, and total services flows including tourism amounted to $460.1 million.
The net surplus of the services account after deducting foreign affairs, such as tourism, sea and air transport, amounted to 229.8 million US dollars 230.3 million dollars.
Total flows from exports, transfers and net services amounted to US$1,786 million, exceeding merchandise imports by US$318.4 million.
When people get money from tourism or remittances, they will use it for food, fuel, or other imports that create a trade deficit.
External borrowing by the portfolios would also lead to the construction of roads or airports and the import of cement and steel.
Private credit will also stimulate imports, as people’s savings are converted into investments in buildings, vehicles or machinery.
There is no pressure on the currency because the balance of payments is not in deficit.
Sri Lanka recorded a balance of payments surplus of $1,364 million as of May 2024, slightly lower than $1,597 million in 2023.
A currency is squeezed only when money is printed under flexible inflation targeting (a type of real interest rate doctrine based on 12-month historical inflation) or inflationary policy is deployed to target potential output (overt macroeconomic policy).
The resulting monetary instability relies on the subtle blaming of “deficits” or imports by inflationists and other mercantilists, even though the banking system is not a sentient being that can distinguish between private and official credit, analysts say.
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Sri Lanka is currently pursuing a contractionary policy but the rupee is under some pressure due to the previous excess liquidity from dollar purchases (strong side peg) which has a negative impact on the exchange rate when left unsterilized or the weak side peg is not applied. (Colombo, June 19, 2024)