21 October 2022 09:24 am Views - 2639
The Central Bank estimated a further decline in imports in September narrowing the trade deficit from the prior month in a clear sign that the policies instituted since April onwards are making the intended adjustments in the country’s external sector which fell into a deep crisis early this year pushing the entire economy off a cliff.
The Central Bank estimated US$ 1,250 million worth imports in September, a decline from US$ 1,486 million in August as imports were restrained through a combination of tighter monetary, fiscal and targeted policy controls in a bid to bring the country’s import bill into parity with what it earns from exports.
The sky-high interest rates since April onwards managed to significantly contain the amount of credit that goes into funding the country’s once massive import bill, while the limitations on open accounts and subsequent controls on select non-essential imports amid the persistent shortage in foreign currency further dampened what Sri Lankans spend on imported goods.
As Sri Lanka ran out of its usable foreign currency reserves in February, bringing the entire economy into a grinding halt, authorities had to contain the country’s import bill to the amount of inflows that it earns from exports and remittances as Sri Lanka lost access to all forms of bridge financing facilities since it reneged on its foreign currency debt payments from April onwards.
The multilateral or bilateral financing will only be unlocked once Sri Lanka activates the current staff-level agreement with the International Monetary Fund (IMF), the success of which depends solely on how quickly the country restructures its debt with its bilateral and private creditors.
Meanwhile, the estimates also showed that Sri Lanka had generated US$ 1,130 million from merchandise exports in September, slightly higher than the US$ 1,224 million earned in August.
While merchandise trade has so far been a bright spot for Sri Lanka, the continuity of the momentum remains in doubt due to the heightened concerns on the global economic stability.
While the official external sector data will be out in a couple of weeks, according to the estimates, Sri Lanka appeared to have further narrowed its trade deficit in September to US$ 120 million from US$ 261 million in August, further alleviating the pressure on the external account.
However, that comes at a hefty cost to the economy and missed opportunities for its economic actors as they forgo their investment and consumption, holding back the personal, professional and business progress of the country’s population for years until the foreign currency inflows are restored.