By: Staff Writer

February 03, Colombo (LNW): Sri Lanka’s imports surged to $1.92 billion in December 2024, significantly higher than the $1.5-$1.6 billion range seen in previous months. This sharp increase followed a surge in credit and came just weeks after warnings against excessive money printing through open market operations (OMOs). The last time imports were this high was in December 2021, when they peaked at $2.24 billion due to large-scale central bank interventions aimed at suppressing interest rates.

In October 2024, analysts had warned that the central bank injected approximately 100 billion rupees into the economy, increasing excess liquidity in money markets to around 200 billion rupees—levels similar to those seen before Sri Lanka’s economic crisis.

Meanwhile, the country’s foreign exchange inflows in December, comprising exports, tourism, and remittances, amounted to $2.41 billion, exceeding merchandise imports by $488 million. However, these inflows also had to cover service outflows, interest payments, dividends, and debt repayments, narrowing the net surplus to $160 million from $319 million in the previous month.

December traditionally benefits from increased tourism earnings, but these funds are later used to finance imports, diluting the initial surplus. Concerns were raised in October when an economic analyst highlighted that the central bank had injected liquidity through OMOs, effectively allowing banks to extend credit without corresponding deposits.

This type of credit expansion ultimately impacts the balance of payments through multiple rounds of investment credit, regardless of whether it funds consumer goods, capital goods, or infrastructure projects.

Interestingly, vehicle imports—often criticized for straining foreign reserves—generate significant tax revenue and reduce government borrowing pressures. In contrast, imports of investment goods and raw materials, which totaled $455.9 million in December, create higher credit burdens since they enter at lower tax rates. The last comparable surge in investment goods imports was in January 2022, when excessive money printing also fueled economic instability.

Attempts to regulate trade by restricting specific imports are ineffective in addressing balance of payments issues. The fundamental problem lies in liquidity injections from OMOs and other monetary policy tools. Although excess liquidity has recently declined, analysts warn that the central bank’s single policy rate could lead to renewed money printing and a second economic default—similar to what occurred in the post-civil war period when mid-corridor rate targeting resulted in a Latin American-style financial collapse.

The misconception that specific imports, such as vehicles, are the root cause of balance of payments deficits persists. However, the true issue stems from central bank credit expansion. Historical patterns show that economic instability often follows excessive monetary injections, as seen in the 1930s when the Federal Reserve’s OMOs led to inflation and currency devaluation.

Currently, Sri Lanka is navigating a delicate monetary balance. The central bank had maintained a tight reserve regime until October 2024, which supported exchange rate stability and economic recovery. However, a shift toward an “ample reserves” regime—where excessive liquidity is injected into the economy—could destabilize the external sector, triggering another crisis.Although private sector credit growth has only recently resumed, a substantial volume of undisbursed credit remains. If released under current conditions, it could challenge external stability and necessitate yet another round of financial stabilization measures.

By: Staff Writer

February 03, Colombo (LNW): The UK’s Minister for the Indo-Pacific, Catherine West, is set to meet with Sri Lanka’s newly appointed government officials during her first official visit under the new UK administration. This visit marks a pivotal step in enhancing UK-Sri Lanka relations, focusing on key areas such as economic growth, anti-corruption efforts, human rights, and national reconciliation.

One of the primary objectives of Minister West’s visit is to boost trade relations between the two nations. She will introduce updated export procedure handbooks designed to help Sri Lankan businesses more efficiently access the UK market through the Developing Countries Trading Scheme (DCTS). These efforts aim to open new trade avenues, benefiting businesses and strengthening economic ties between the two nations.

Coinciding with Minister West’s visit, the UK has appointed Lord John Hannett of Everton OBE as the new Trade Envoy to Sri Lanka. In his role, Lord Hannett will work closely with senior officials and business leaders in both countries to promote trade opportunities, increase market access, and encourage economic collaboration.

UK High Commissioner to Sri Lanka, Andrew Patrick, expressed his enthusiasm about this appointment, stating: “Lord Hannett’s appointment as the UK’s Trade Envoy to Sri Lanka is a welcome development. With his expertise, we anticipate a strengthened bilateral trade relationship, particularly in key sectors such as education, financial services, renewable energy, and IT-enabled services. His contributions will be instrumental in driving economic growth and prosperity for both the UK and Sri Lanka.”

During her visit, Minister West will also travel to Jaffna, underscoring the UK’s commitment to human rights, post-war reconciliation, and minority rights. She will engage with local political leaders and civil society organizations involved in post-conflict rehabilitation. Additionally, she will visit a UK-funded climate adaptation project focused on mitigating groundwater depletion, a pressing issue affecting Sri Lankan agriculture and local communities.

Speaking about her visit, Minister West stated: “I am pleased to make my first official visit to Sri Lanka and meet the new government soon after their appointment. The UK and Sri Lanka share a dynamic and evolving relationship, and I look forward to exploring ways to strengthen our ties in trade, education, and economic development. Our commitment remains strong in tackling corruption, supporting human rights progress, and addressing climate-related challenges.”

Education is another focal point of Minister West’s visit, as she will engage with the British Council to explore expanding UK-Sri Lanka educational partnerships. With Sri Lanka emerging as a regional hub for transnational education, discussions will center on higher education collaboration and skills development initiatives.

Emphasizing the importance of the visit, High Commissioner Andrew Patrick noted: “Minister West’s visit is a significant milestone as it marks the first engagement between our two new governments. It reaffirms the UK’s commitment to deepening our bilateral partnership. We anticipate increased engagement in the coming months as we collaborate with Sri Lanka on their reform agenda.”

The UK’s renewed engagement with Sri Lanka aims to foster a stronger and more mutually beneficial partnership, focusing on trade expansion, economic reform, climate resilience, and human rights. As both nations navigate their economic and political landscapes, these initiatives are expected to create lasting opportunities for growth and collaboration in the years ahead.

By: Staff Writer

February 03, Colombo (LNW): The construction industry in Sri Lanka experienced growth in building activities in December 2024, as indicated by the Purchasing Managers’ Index for Construction (PMI – Construction), compiled by the Central Bank of Sri Lanka (CBSL).

The total activity index remained at 51.4, the same value recorded in November. Despite this stability, CBSL noted that industry stakeholders emphasized the need for more large-scale construction projects to ensure continued sectoral growth.

New orders remained at a neutral threshold, signifying that the number of construction projects approved in December was consistent with the previous month.

Meanwhile, although the employment index continued to decline, the rate of contraction slowed in December. The Quantity of Purchases index showed an increase, reflecting the overall expansion in construction activities.

 However, suppliers’ delivery times continued to be extended during the month. Looking ahead, the industry outlook for the next three months remains optimistic, primarily due to anticipated favorable weather conditions. Nevertheless, firms are keenly awaiting the government’s infrastructure initiatives in the upcoming Budget.

In a parallel development, Amicis Holdings, in collaboration with Autodesk, hosted a groundbreaking event aimed at transforming Sri Lanka’s construction sector. The event attracted over 100 industry professionals, including architects, engineers, and other key stakeholders, who explored how Autodesk’s advanced technology could drive innovation and efficiency in the industry.

A major highlight of the event was the insightful presentations by industry leaders, including the International Construction Consortium Ltd. (ICC) and ARK Draft Ltd. These organizations shared their experiences in implementing Building Information Modelling (BIM) using Autodesk tools. They detailed the challenges faced during adoption and the substantial benefits achieved in design, collaboration, and project execution, resonating strongly with the audience.

Live demonstrations and panel discussions fostered an engaging platform for knowledge exchange, covering topics such as utilizing BIM for sustainable construction and addressing digital transformation hurdles. The interactive sessions sparked discussions and encouraged attendees to integrate new technologies into their workflows.

 “This event marks a pivotal step toward fostering a more innovative and sustainable construction sector in Sri Lanka. Autodesk’s solutions go beyond digital transformation; they pave the way for smarter, greener, and more efficient construction practices,” said Deric John, Co-founder and Director of Amicis Holdings.

Following the event’s success, Amicis Holdings and Autodesk reaffirmed their commitment to spearheading digital advancements and empowering Sri Lanka’s construction sector to achieve greater efficiency, sustainability, and creativity. As the country embraces this technological revolution, the future of construction appears increasingly promising.

February 03, Colombo (LNW): Randeewa Malalasooriya, President of the Coconut Milk Manufacturers’ Association, has highlighted the immense growth potential of Sri Lanka’s coconut industry, suggesting that it could generate up to US$ 2.5 billion in revenue, a substantial increase from the current average of US$ 850 million.

Malalasooriya told Ada Derana that there is need for strategic improvements in the sector to achieve this goal. He pointed out that the country must increase its annual coconut production to 4.5 billion nuts in the long run to meet growing demand, whilst also focusing on the import of lower-value coconut products.

These imports could then be processed into value-added products for re-export, boosting the industry’s overall output and profitability, he emphasised.

Malalasooriya further stressed the importance of reducing coconut wastage by shifting towards processed coconut food, a move he believes will have a significant impact on both the environment and the economy.

He also noted that approximately 50 per cent of the coconut industry’s revenue comes from kernel products, with Sri Lanka currently ranked as the fourth largest coconut producer in the world.

“With the right strategies in place, the industry has the potential to earn USD 2.5 billion or more,” he explained. “Despite current challenges, Sri Lanka remains well-positioned to capitalise on the global coconut market, which offers significant opportunities for growth.”

Looking to the short term, Malalasooriya expressed optimism that the industry could increase its revenue to around US$ 1.5 billion. “In the long term, we believe reaching USD 2.5 billion is very achievable,” he added, citing the need for focused attention on scaling production and improving practices across the sector.

To achieve these ambitious targets, Malalasooriya suggested that Sri Lanka could look to import raw coconut materials from countries like Indonesia or the Philippines.

These lower-value products could then be processed locally, adding value before being exported to international markets.

However, he also pointed out that the country faces challenges with the yield per coconut tree, which remains relatively low compared to global standards.

Increasing efficiency in this area, alongside transitioning more coconut consumption to processed forms, could significantly reduce waste and improve the sustainability of the industry.

Malalasooriya concluded by adding that the coconut sector holds vast untapped potential, and with strategic investment and enhanced production practices, Sri Lanka could vastly increase its contribution to the global market, benefiting both local producers and the national economy.