Tuesday, July 23, 2024

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Sri Lanka gains a significant boost in foreign exchange revenue in May 2024

By: Staff Writer

June 30, Colombo (LNW): Sri Lanka experienced a significant boost in foreign exchange revenue from remittances and gross services totalled 2,016 million dollars, according to the central bank.

This surge in revenue accompanied a substantial rise in tourist arrivals, has also had a positive impact on the country’s imports and merchandise trade deficit, gradually mitigating it as tourism earnings increased and individuals within the sector spent their wages and other earnings.

Sri Lanka’s current foreign exchange earnings from exports, remittances and gross services totalled 2,016 million dollars, exceeding imports of 1,404 million dollars by 611 million US dollars in May 2024, official data showed.

Sri Lanka’s exports were 1,011 million dollars in May, remittances were 460.1 million dollars and gross services inflows including from tourism was 460.1 million dollars.

The net services account surplus, after deducting outward like tourism, sea and air transport of 229.8 million US dollars was 230.3 million dollars.

Total inflows from exports, remittances and net services were 1,786 million dollars, which exceeded merchandise imports by 318.4 million US dollars.

When people get money from tourism or remittances, they will use them for food, fuel or for other imports driving imports and triggering a trade deficit.

Private credit will also drive imports as savings of the people are turned into investments in buildings, vehicles or machinery.

There is no pressure on the currency as the balance of payments is not in deficit.Sri Lanka has posted a balance of payments surplus of 1,364 million dollars up to May 2024, slightly lower than 1,597 million dollars in 2023.

Pressure on the currency is triggered only when money is printed under flexible inflation targeting, (a type of real interest rate doctrine based on historical 12-month inflation) or inflationary policy is deployed to target potential output (overt macro-economic policy).

The resulting monetary instability is then based on artfully blamed on ‘deficits’ or imports by inflationists and other Mercantilists though a banking system is not a sentient being to distinguish between private and official credit, analysts say.

When reserve collecting central banks without a clean float engages in such activity, currencies collapse, governments get ousted amid social unrest and countries eventually default.

Sri Lanka is currently running deflationary policy but the rupee is under some pressure due to earlier excess liquidity from dollar purchases (strong side pegging) which boomerang on the exchange rate, when left unsterilized or weak side pegging is not deployed.

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