Sri Lanka’s hard goods exports were 877.6 million US dollars in April, up from 848.6 million US dollars a year ago, in a holiday month which usually has a 20 percent downturn.

Remittances were 543.8 million US dollars, up from 454 million last year.

Tourism income was estimated at 225.7 million US dollars for April, which is from a survey and may not be as reliable as import export data from customs or remittances data from banks.

Gross services which include tourism was 558 million US dollars.

Foreign exchange earned by Sri Lankans from exports, remittances and gross services services were 1,977 million US dollars in April 2024.

Merchandise imports were only 1,435 million US dollars, leaving a surplus of 542 million dollars.

Sri Lanka’s central bank has started to release more service data in 2024 giving broader picture beyond the Merchandise trade account.

Turning in their graves?

In Sri Lanka there is a strong belief in the trade deficit.

Macro economists also dangle the ‘current account deficit’ as an excuse for monetary instability after printing money to enforce rate cuts, dredging up doctrine from the days of classical mercantilism in the 17th century, and dressing it up with a new label (the current account deficit vs the commercial balance).

Economic textbooks may be directly to blame for the revival of Mercantilism as well as the bureaucratic policy rate, analysts say.

The Mercantilist doctrine of the commercial balance was comprehensively refuted by classical economists including Smith, Hume, Mill, Thornton, and Torrens in particular who had micro-knowledge of note-issue operations.

In the last century German-Austrian and Swedish economists directly challenged Keynes but the doctrine has persisted among Anglophone academics in particular as inflationism worsened from the 1960s with Fed activism.

In countries with inflationary central bank operations, large numbers of perfectly sane people believe that goods can be imported indefinitely without dollars being earned (the seller not getting any dollars), triggering a chronic merchandise ‘trade deficit.

They also believe that it is a ‘problem’ or that the trade deficit contributes to external instability or currency depreciation.

The obsession with the trade deficit seems to be driven by a belief that hard goods were ‘superior’ to services.

Students of history say similar attitudes were seen in the writings of nationalists who criticized the shift to coconut which was a commercial crop in areas like Kurunegala during British rule.

Sri Lanka’s central bank however has not discriminated against any hard work done by the people, or suggested that services workers were inferior.

Sri Lanka has a private savings rate of around 30 percent of GDP, which also broadly applies to those earning foreign income.

Savers may directly invest in assets, or put money banks as deposits either after conversion to rupees or as dollars in forex accounts.

Banks in turn will give them as investment credit to borrowers, which will turn into imports or build up dollar balances by investing them abroad.

Sri Lanka’ central bank in April collected about 420 million US dollars from the banking system, creating rupee liquidity.

Domestic Operations

When private credit is weak – or when money is not printed to enforce a policy rate claiming that inflation is low with statistics defeating economic principles – the central bank can sell sterilization securities into banks (in the current case Treasury securities in its portfolio) mop up the liquidity and build fx reserves, East Asia style, through deflationary domestic operations.

The government can also borrow rupees through Treasury bills buy dollars and settle foreign loans and end up with a rupee debt instead of a dollar debt, as happened before potential output targeting and flexible inflation targeting, preventing the build-up of dollar debt and an eventual default.

At the moment large volumes of excess liquidity remain in the banking system, which can be used up as private credit recovers, pressuring the exchange rate unless the dollars that created the liquidity is sold (unsterilized intervention).

The central bank can also prevent imports from being generated through investment credit by steadily selling its securities portfolio if it wants to keep the reserves.

Imports can also increase when foreign aid resumes and the government re-starts infrastructure projects. Sri Lanka government’s net foreign borrowings, except in stabilization years, is usually positive.

After re-structuring loans, Sri Lanka’s debt repayments will reduce, and only interest will have to be paid for several years. (Colombo/June01/2024 – Recast with revised data to show gross services which include tourism. Gross services data only available for two months)

“IORA consists of countries with different sizes and shapes, different economies, and different cultural thresholds,” Hulangamuwa said at the IORA Business Conclave organized by the Chamber.

“All together they present an enormous opportunity of investment amongst member countries.”

The conclave was jointly organized with the Ministry of Foreign Affairs.

“The world economy is 86 trillion. Our economy is 78 billion. If you translate that in to percentage it is 0.08. So, there is much more for Sri Lanka to gain by being part of larger markets rather than being alone,” Foreign Minister Ali Sabry said.

“Sri Lanka has started trade negotiations with Malaysia and Indonesia so that we can create bigger markets for us,” Minister Sabry said.

“Our market is 22 billion but with partnerships we are trying to create a bigger market. It’s a win-win. We have already built partnerships with India, Pakistan, Thailand.”

Secretary General of the Global Alliance for a Sustainable Planet, Satya Tripathi said in his keynote speech at the conclave “We can look after ourselves as developing countries. We can actually come together and create the kind of collective, kind of virtuous partnership that makes all risks melt away.”

The IORA business conclave – which attracted over 200 delegates including 70 international businesspersons from 11 Indian Ocean Rim Association Member States and 6 Dialogue Partners – facilitated robust B2B engagement and discussed collaborations in tourism, agriculture, logistics and ICT, Chairman of the IORA business forum, Buwanekabahu Perera said. (Colombo/May30/2024)

“The Head of the embassy encourages Sri Lankan investors to establish business links in Bagdad and Kurdistan,” the trade ministry said in a statement.

Trade Minister Nalin Fernando met Al-Masoudi to discuss conducting the 9th session of Iraq-Sri Lanka for Economic and Technical Cooperation in Sri Lanka in November. The forum offers a platform to develop bilateral relations between both countries.

Establishing direct shipping facilities which would bolster Sri Lanka’s trade to Europe and the Middle East, improving air connectivity, and bilateral tourism ventures between the two countries were discussed at the meeting.

The re-establishment of a Sri Lankan Embassy in Iraq was also discussed to solve visa and tax issues between the two countries.

Iraq is one of the main buyers of Sri Lanka’s tea. Nearly 150,000 migrant Sri Lankans work in Iraq. (Colombo/May29/2024)

Sri Lanka produced 152,000 metric tonnes of rubber in 2012, but by 2023, it had fallen to only 64,400 metric tonnes, Manoj Udugampola, a former Chairman of the Colombo Rubber Traders Association told reporters in Colombo.

A census by Sri Lanka’s Rubber Development Department had found that the area cultivated had fallen from 138,000 hectares to 98,250 hectares.

“Apart from that, if you take the rubber extent we had ten years back, which was 138,000 Ha, last year the Rubber Development Department got a fresh survey, as per that census we have only 98,250 Ha,” Udagampola said, estimating a drop in 40 percent of the land extent.

“Out of that 98,000 hectares 10,000 hectares, around 10 percent of the total extent in the country is mostly kept abandoned, mostly by the smallholders,” he said.

“Why? Because with every kilo they tap, they incur a loss.”

“Last year’s 1x crepe rubber price was Rs. 671, this year it goes for 775, our net sales averages comes to around 660 rupees.”

On May Day, President Ranil Wickremesinghe announced a wage hike to 1,700 rupees a day from the 1,150 they were paying. Tea farms were also ordered a similar hike.

“As plantation companies, even at a loss, we maintain our rubber plants and rubber plantations. With this 70 percent increase of wages, from 1150 rupees, to 1902 rupees with EPF it’s a 74 percent increase,” he said.

“If wages rise by at least 180 rupees, then we may face a 120 percent rise in cost of production,” he said.

“And just because our cost of production may rise, we cannot raise our sale prices, because we are not price makers, we are price takers,” he explained. “Most rubber sold in the world is at a much larger scale, and at cheaper prices.”

RPCs manage a total of 30 percent of the rubber production as well as lands, while 70 percent is managed by small-holders, who are moving away from the rubber industry.

Tea smallholders had worked out a scheme to help pluckers get more money and increase the yield, which the large tea farms were trying to do as ‘revenue share’, which was also hit by the new gazette notice. (Colombo/May29/2024)

As part of this initiative, 10 pioneering Sri Lankan brands will be selected to showcase the nation’s dedication to sustainability, ethical practices, and cultural heritage on a global scale, with support from CELE and Good Life X.

“Chosen for their commitment to ethical standards, sustainability, and social responsibility, these ten brands will undergo a comprehensive capacity-building program,” the EDB said.

The program seeks to promote Sri Lankan crafts internationally and make a significant impact on the local economy by fostering a sustainable business model that benefits artisans and their communities.

The global creative industry is one of the fastest-growing economic sectors globally, with high engagement of SME entrepreneurs, and recognized for its substantial role as a contributor to the gross domestic product (GDP) in many nations.

“The Sri Lankan Creative Industry also has significant potential to contribute to the economy, given Sri Lanka’s inherent craftsmanship, cultural diversity, and rich natural resources. These provide the base for a wide range of creative industries such as art, crafts, design, fashion, filming, performing arts, heritage, architecture, Sri Lanka’s cuisines, and more.”

“To realize this potential, Sri Lanka must continuously seek new and sustainable sources of growth. This is essential to revitalize our economy and create new job opportunities that align with the aspirations of our young people.

“TIFC and UAL have conducted research on “Sri Lanka’s Crafting Potential: Sustainable Trade and Development for Sri Lanka’s artisanal sector” to gain an in-depth understanding of the Sri Lankan craft sector for future interventions, with the three key pillars innovation, collaboration, and education in mind, and a research report has been prepared. (Colombo/May27/2024)

“We have discussed imposing a permanent tax on B-onions and potatoes. This will help stabilise the price. We can remove or reduce the tax in cases of shortage.”

Sri Lanka started to grow potatoes and big onion in Sri Lanka in the 1980s during the time of President J R Jayewardena./

Sri Lanka did the deepest reforms for an open economy in 1977-78, but macro-economists started to print money and the country went into an IMF program within two years as the economy recovered, and more later and the currency started to slide and inflation shot up.

Both potatoes and onions were grown as import substitutes and have received protection for decades.

The call for food taxes come despite large number of people being pushed into poverty after a currency crisis in 2022.

A 10,000 person survey by LirneAsia, a regional policy research organization, found that 33 percent of the respondents had skipped a meal and 47 percent reduced their meal sizes, after the currency crisis hit the country in 2023.

Sri Lanka’s poor surged by 4 million to 31 percent of the population in 2023, the survey found.

Read more: Sri Lanka’s population in poverty surges to 31-pct of population: LirneAsia Survey

About 27 percent of adults restricted their meals to feed children. The survey was conducted from October 10, 2022 to May 12, 2023.

When India banned the export of B-onions the price went to over 700 rupees a kilogram, and farmers cultivated more onions. Now the price has come down to around 100 rupees, Amaraweera said.

“The prices are up because our production costs are high,” he claimed. “We can’t compete with imports. We have to import the seed potatoes too. We are trying to produce seed potatoes here. If we can do that we can become competitive.”

Though some Sri Lanka farmers produce food to feed the people and also export their products, others have for decades produced foods under state protective taxes and got used to high prices above global levels.
(Colombo/May22/2024)

Goods exports in the four months to April 2024 was 3,982.71 million down 3.55 percent from the corresponding period last year.

Service exports were up 19.28 percent in April at 300.41 million dollars.

Total goods and services exports rose 1.25 percent to 1,114.22 million.

In traditional hard goods exports in April, tea was up 2.22 percent to 95.46 million dollars, rubber-based products were up 20.18 percent to 66.58 million dollars, and coconut-based products were up 17.73 percent to 60.76 million dollars.

Other exports were also up; ornamental fish exports were up 30.66 percent to 2.77 million dollars, and processed food and beverages were up 7.55 percent to 32.35 million dollars.

Apparel exports were down 6.34 percent to 321.06 million dollars, and Spices and Concentrates were down 14.47 percent to 18.03 million dollars. (Colombo/May21/224)

The Regulation on Deforestation Free Products (EUDR), which comes into effect from December 30 this year, seeks to guarantee that products EU citizens consume do not contribute to deforestation or forest degradation worldwide.

Sri Lanka, which exports rubber and related products, has agreed to implement the policies of the Act. Around 30 percent of the rubber exported by the country is bought by countries belonging to the European Union.

The Michelin team evaluated the measures taken by the Sri Lankan government to expand rubber cultivation in Sri Lanka without destroying forests.

Minister Amaraweera who met with the delegation last week (17), assured them that no efforts will be made to expand rubber cultivation in the wet zone of the island, and instead steps have been taken to use lands in the dry zone.

“Rubber plantations in areas like Monaragala, Anuradhapura, Ampara have already been very successful and have undergone many positive environmental changes due to rubber plantation,” the minister was quoted as saying.

The minister said that other export agricultural crops, such as pepper, will instead be cultivated in the wet zone.

Sri Lanka produces high-quality natural rubber and rubber-based products, including niche market-based products such as solid tires, sole crepe for shoes, and high-quality surgical gloves and other gloves.

Sri Lanka cultivates around 65,000 hectares of rubber, and exports 98,500 metric tons annually earning approximately 40 million dollars. (Colombo/May20/2024)

Note: Edited to reflect it was a Michelin delegation that visited and not a EU delegation.

“This strategic alliance aims to bolster the development of small and medium scale enterprises (SMEs) and integrate them into the global export market,” the EDB said after signing the agreement.

EDB will identify global market opportunities and facilitate the necessary prerequisites to promote exports from Sri Lanka.

The collaboration will provide educational initiatives for the Bank’s staff to ensure they are well-equipped to advise customers on export market requirements and opportunities. The Bank has established export sector specific SME hubs (export hubs) at 7 of its branches. (Colombo/May14/2024)

“Applications from eligible persons have been called to fill the vacancies in the posts of member in
the Office on Missing Persons (OMP),” it said in a statement.

Applications should be prepared in accordance with the information available on the Parliament website and sent on or before May 27 to; ‘Secretary-General to the Constitutional Council, Constitutional Council – Office, Parliament of Sri Lanka, Sri Jayewardenepura Kotte by registered post, or by email to constitutionalcouncil@parliament.lk the statement said.

Applicants should indicate ‘Appointment of Members to the OMP’ on the top left-hand corner of the envelope, or as the subject of the email.

President Ranil Wickremesinghe has said the government hopes to resolve the issue of missing persons by 2025. “We are committed to resolving the land issue in the North and addressing the missing persons’ matter before the conclusion of 2025,” Wickremesinghe was quoted in a statement by his media division earlier this year.

The Council of the European Union in November in a Joint Staff Working document on the progress of Sri Lanka, highlighted concerns regarding the independence and effectiveness of the Office on Missing Persons and the Office of Reparations, after the introduction of the 20th amendment of the Sri Lankan Constitution in October 2020.

A trade concession scheme with the European Union trade bloc, namely, the Generalised Scheme of Preferences Plus (GSP+), for Sri Lankan exports is conditional on compliance with international human rights conventions.(Colombo/May6/2024)

A request to end a ban on shifting dollar proceeds from one bank to another, which was slapped when the central bank was conducting inflationary policy leading to forex shortages has been removed.

“Exporters recognize the Central Bank’s positive move to meet their request to remove restrictions on the movement of foreign exchange between commercial banks,” the Joint Apparel Exporters Association said.

“The export sector has weathered turbulent times and continues to reinvent itself to convert to lean manufacturing, diversify its offerings and to actively pursue new markets.

“However, for fair trade to persist and to enable these critical industries to continue to trade with the world and to retain their profitability, fiscal common sense and timely policy support through the immediate removal of the mandatory conversion of export proceeds is urgently required.”

Sri Lanka’s central bank is currently conducting deflationary domestic operations (selling central bank-held securities to banks and taking in their deposits) triggering a balance of payments surplus.

Under deflationary ‘monetary policy’, a reserve collecting (de facto pegged) central bank can either appreciate the rupee, keep the peg fixed or depreciate the peg by deploying its ‘exchange rate policy’ as it wishes.

Before 1978 and the IMF’s second amendment to its Articles (after the Fed floated away from gold) Sri Lanka had a domestic legal requirement and also an obligation to the Fund as a member to maintain a fixed anchor.

However, Sri Lanka was left without a credible anchor after 1978, leading to severe depreciation and inflation as various dual anchor conflicting operational frameworks were tried out, analysts say.

Currency flexible inflation targeting (inflation targeting without a clean float) and potential output targeting (printing money for growth) is being carried out.

Most East Asia nations including Malaysia, Thailand, Hong Kong (the country from which Singapore got the first large flows of FDI), China after 1993 maintained external anchors.

Sri Lanka’s central bank is allowing the rupee to appreciate after a steep collapse in 2022 to 370 from 200, after a float failed due to a surrender rule. Rates were hiked to kill private credit and the currency was then pegged at around 360 to the US dollar to stop possible hyperinflation.

An appreciating currency tends to squeeze margins of exporters when inputs (usually domestic non-traded items, like wages or transport, or public utilities) do not fall in step. A stable exchange rate however will prevent social unrest and strikes for higher wages.

While some countries like Singapore have deliberately appreciated their currency over time in a slow process, leading to higher real wages, quick appreciations do not give enough time for companies to invest to boost productivity.

Depreciation on the other hand tends to give temporary benefits to exporters, at the expense of social unrest, inflated away real savings (which leads to capital imports and current account deficits), critics say.

Sri Lanka’s currency was under severe pressure and collapsed with the worst import controls in recent history. Most of the controls have been relaxed but vehicles remain.

Sri Lanka imposes import controls due to confused Mercantilist ideology regarding trade (trade and current account deficits) that revived from the 1920s onwards after the Fed invented the policy rate, that were defeated by classical economists before the ‘age of inflation’ started.

Classical economists have been saying from the 1960s that import controls based on Mercantilist ideology, have no effect on the external sector as long money is printed.

The full statement is reproduced below:

A hollow rupee: the high cost of mandatory currency conversions on Sri Lanka’s ability to earn foreign exchange.

Politics and economics are concepts that are fundamentally intertwined. Yet the unprecedented economic crisis of 2022 highlighted the complex challenges of aligning short-term political goals with long-term economic strategies.

While the sharp appreciation of the Sri Lankan rupee in recent months has been roundly welcomed by most sectors of society as a positive signal, this optimism overlooks the nuanced factors influencing our currency’s strength and the medium-long-term challenges that could arise from volatile fluctuations in the price of the rupee.

While a stronger rupee certainly promises cheaper imports of essentials like petroleum, electricity, food medicine and other essentials in the short term, as a nation that is surviving on borrowed time and foreign currency, we cannot afford to ignore the other side of the equation – exports.

Dynamism at a time of unprecedented volatility

Already, Sri Lanka’s manufacturing and services sector exports have underperformed in the first quarter of 2024. The tentative recovery that we have seen in the first quarter also needs to be considered relative to the major setbacks of 2023 and 2022, which left no industry undisturbed.

While the tourism and exports sectors were the most adversely affected, they persevered and found strategies to deal with the dual impact of local and global challenges. The economy was stripped of foreign reserves for the purchase of raw materials and external pressures caused serious buyer dissatisfaction and changing priorities of customers.

These impediments were compounded by post-Covid recessionary effects on world markets, the Ukraine-Russia war and fluctuating world petroleum prices, which in turn, resulted in reduced orders for Asian manufacturers and as the data shows Sri Lankan manufacturers in particular. The war in the Middle East now presents new challenges both in market sentiment and costs of moving goods from East to West.

Wedged between these challenges, the export industries in Sri Lanka, with apparel leading the charge, rallied their industries and met these challenges head-on. Sri Lankan exporters were flexible and drove product diversification while simultaneously exploring new markets. Manufacturers sought quality through innovation, value addition and sustainable manufacture, instead of depending only on traditional markets.

Moreover, export manufacturers including the apparel sector, have actively contributed to and aided the government in garnering the support required locally and internationally for the negotiations of Free Trade Agreements, especially in emerging markets such as India and China.

Parallel to these developments the Rupee has been buoyed by improved worker remittances and a booming tourism sector. However, it must be reiterated that this boom which has contributed to an appreciated Rupee has been artificially sustained by policies such as the mandatory conversion of export proceeds. Initially implemented in 2021 as a temporary measure to stabilize our economy, the policy’s continued enforcement is now undermining the very competitiveness of Sri Lanka’s exports.

If Sri Lanka is to sustain long-term economic success the role of goods exports cannot be understated nor dismissed.

A period of painful readjustment

The Government of Sri Lanka, steering the country amidst the worst economic crisis the island had faced since independence, put in place a mandatory foreign exchange conversion policy. This required that all export proceeds once received can only be retained in USD for specified payments as identified in Gazette No.2251/42, while the remaining foreign exchange in earnings must be converted into Sri Lanka Rupees by the 7th of the following month.

The purpose of the policy was to conserve the rapidly dwindling foreign exchange reserves. In fact, even before the policy was implemented, at the peak of the crisis the apparel sector supported the country with the provision of foreign exchange to meet urgent payments that had to be made for the supply of fuel and medicines. In a time of grave national need when the tourism sector and remittances collapsed no one can accuse the export industries and the apparel sector in particular of failing to rise and serve the national interest.

The issue with the aforementioned gazette is that “the mandatory conversion policy especially affected export industries like apparel, which brings in over half of all export revenue into the country. Despite the harshest challenges, the apparel industry withstood the turbulence and managed to bring in revenue and much-needed foreign exchange of up to USD 5.9 billion in 2022. The impact of the policy and other geopolitical occurrences were felt in 2023 when apparel earned USD 4.5 billion in 2023, which saw a dip in nearly 20 percent in earnings, as the post-Covid bubble burst and global apparel imports slumped.” Yohan Lawrence, Secretary General of the Joint Apparel Association Forum (JAAF), explained.

Except for the most unviable and loss-making locations, the apparel industry worked tirelessly to retain most of its 350,000-strong employee base and continued to meet its sustainability and compliance targets with stoic resilience.
Gradually there was light at the end of the tunnel with the International Monetary Fund (IMF) striking an agreement for a bailout in 2022. With it came a battery of reforms aimed at weeding out corruption and establishing standards for greater structural and systemic efficiency in the economy.

Rising calls for exports-led growth clash with a stronger rupee

Aided by multilateral and bilateral grants and loans, the Government committed to floating the Rupee in 2022, which thereafter reflected more accurately the exchange rate and reduced its artificially inflated value. This made exports competitive and Sri Lanka apparel began to regain traditional and new buyers. This in turn helped us to maintain our hard fought position as one of the world’s top 10 apparel sourcing destinations, holding 1 – 2% of the global apparel market share.

In that regard, President Wickremesinghe himself lauded the Board of Investment, approved export manufacturers’ efforts and reiterated the need for an exports-led economic recovery.

He stressed that the Government was garnering support for a favourable agreement on repayment of Sri Lanka’s external debt and working out a more comprehensive and efficient policy framework to encourage foreign direct investments into the country. He reiterated that the export industries would always be critical for the country’s economic prosperity.

Particularly in view of the recovery of the tourism earnings and sharp improvements in worker remittances, that have already at pre-COVID levels. State Finance Minister, Ranjith Siyambalapitiya, recently declared that Sri Lanka’s foreign reserves could hit the USD 5 billion mark by mid-year.

In such a backdrop, it is clear that the mandatory conversion policy which was introduced as short term crisis measure is no longer required and policy makers are urged to withdrawn it and allow level playing field in terms of timing of conversions based on commercial needs which will allow currency market to operate at optimum equilibrium based on market forces of both import and exports.

The export industries sustainability remains threatened among geopolitical and other external shocks and challenges. The World Bank predicts the country will grow at 2.4% this year. The export sector’s expansion is critical to meet the predicted growth targets. “External shocks and geopolitical phenomena may be beyond their control however, the Government is within reach of stemming the challenges faced by the export industries by removing the mandatory conversion policy,” Lawrence contends.

“This will give export industries a breathing space to gain, even marginally, some benefit from their labour and efforts, even as the Rupee continues to appreciate and reduce price competitiveness of our exports in the global markets,” he reiterates.

The impact of uncompetitive exports will be felt with a 9-month lag

There is speculation by monetary experts that the Rupee, presently appreciating amidst a controlled float and with the ban in place on the import of vehicles for personal use, and the suspension of payment of foreign debt, will soar when these variables change.

Experts forecast that the Rupee will likely settle at LKR 310 – 320 by the end of the year. In the interim, the Rupee’s gain against harder currencies is already reducing the competitiveness of Sri Lanka’s exports. The impact of these dynamics will be felt in terms of reduced export revenue, within approximately nine months – which is the typical lead time on apparel orders. This will ultimately be a difficult precipice from which to build back Sri Lanka’s most lucrative industries.

Continued reductions in export earnings could also see the real danger of exporters being forced to shed their workforce to stay competitive, agile, and cost-effective. The apparel industry presently employs over 15 per cent of the country’s skilled workforce.

Retraining and re-skilling new workers in the future will debilitate Sri Lanka’s economy and disrupt its industrial output. The only way to stem these devastating projections is to create a more conducive policy framework within which to operate for the long-term benefit of the country and to ensure its prosperity.

The export industries, led by the Joint Apparel Association Forum, the Exporters Association of Sri Lanka, the National Chamber of Exporters, the Tea Exporters Association and the Sri Lanka Association of Manufacturers and Exporters of Rubber Products, have already appealed to the Central Bank of Sri Lanka and the Government to remove the mandatory conversion policy to enable stronger growth of export revenue into the country.

The plight of export manufacturers will impact the larger players in the export sector, but will severely diminish the micro, small and medium exporters upon which many are dependent in Sri Lanka.

Exporters recognize the Central Bank’s positive move to meet their request to remove restrictions on the movement of foreign exchange between commercial banks. The export sector has weathered turbulent times and continues to reinvent itself to convert to lean manufacturing, diversify its offerings and to actively pursue new markets.

However, for fair trade to persist and to enable these critical industries to continue to trade with the world and to retain their profitability, fiscal common sense and timely policy support through the immediate removal of the mandatory conversion of export proceeds is urgently required.

With exports of 1,139 million US dollars, the merchandise trade deficit was 369 million dollars.

Nobody however will ship good to Sri Lanka on a sustained basis, unless they were paid for by dollars, which Sri Lankans earn from engaging in service sales like tourism, working abroad or providing IT -BPO services.

Items classified into the service account (which excludes worker remittances), was 431 million dollars in surplus.

IT-BPO services were listed at 70.4 million dollars, tourism was estimated 338.4 million dollars (travel abroad by Sri Lankans was estimated at 18.5 million dollars and passenger transport out 38.3 million dollars.

In the first quarter the trade deficit was 1,229 million dollars, up from 896 million dollars last year.

The service account surplus was 1,267.5 million dollars in the first quarter of 2024, up from 782.5 million dollars last year.

The balance of payments was also in surplus in March, after financial account inflow and outflows and errors and omissions if any.

If the central bank does not print money (cut rates with reverse repo injections or standing facilities) and runs deflationary policy (sells down its Treasury bills on a net basis) the balance of payments can be maintained as a surplus and the exchange rate unchanged.

A true fixed exchange rate with neutral policy, East Asia style fixity involving collecting reserves beyond reserve money growth (keeping rate higher than required to keep the BOP in balance), has led to a collapse in domestic interest rates over time. (Colombo/May02/2024)

Toyota Lanka took out advertisements on Sunday to sell the new HiAce passenger van, which is permitted for use in the tourism sector, where the government would allow 750 vans to be imported.

The move startled dealers who have been offering their used vans at astronomical prices.

The price of a 13-seater automatic HiAce was listed at an all-inclusive price of 16 million rupees, nearly half the 32.5 million rupees asking price of a five-year-old HiAce that had travelled 48,000 kilometres, advertised in recent days.

HiAce vans of various ages are still advertised around 14 to 23 million rupees in online market places.

A salesman at Toyota said the price of a brand-new van included approximately 7.0 million rupees in taxes.

These vans could be imported by individuals registered with the Tourist Board.

There are also other factors that may cool prices, industry analysts say.

Any further appreciation of the Sri Lankan rupee could further reduce the import prices of these vehicles, most of which are imported from Japan.

The Sri Lankan rupee has appreciated by 20 percent against the yen this year alone, according to the Central Bank of Sri Lanka.

Speculation that the government may relax the ban on vehicle imports in the run-up to the presidential elections, which must be held sometime between September 15 and October 15, is also making some potential buyers take a wait and see approach. (Colombo/April28/2024)

Departures for foreign employment in August 2022 was 26,394, down from 29,186 in 2022. In September departures fell from 30,104 in 2022 to 25,311, Foreign Employment Bureau data quoted by the central bank shows.

In December 2023, departures were 23,259, down marginally 23,407.

Passport issues began to fall from June 2023.

In 2022, 92,880 passports were issued in June, 100,396 in July and 115,403 in August.

In 2023, 88,308 passports were issued in June, 76,071 in July and 87,433 in August.

In December 2023, 53,431 passports were issued, down from 69,920 in 2022.

Meanwhile, total departures of Sri Lankans from the country for all purposes continued to increase.

This may be due to a gradual recovery in incomes leading to a recovery in outward tourism.

Advertisements for outbound travel including for pilgrimages to India (Dambadiva charika) have started to appear in Sri Lankan media amid monetary stability.

Sri Lanka also clamped down on workers departing for work on tourist visas. There is no information whether some persons were mis-declaring departures.

Sri Lanka saw a spike in outmigration after macro-economists printed large volumes of money to push growth (target potential output), a practice that gained ground after the end of a civil war triggering serial currency crises. In 2022 the rupee collapsed from 200 to 370 to the US dollar.

Currency depreciation, promoted by inflationists for several decades based on Mercantilist ideology (in the belief that it increases exports or decreases imports or both), destroys real wages making it difficult for people to make ends meet.

Most of the worker departures are to countries with superior monetary regimes in the Middle East, based on currency board like principles (cannot cut rates with inflationary open market operations), which require imported labour due to fast growth.

Sri Lanka’s top remittance generating countries are Kuwait, Qatar, UAE, Saudi Arabia, all of which have currency board style regimes.

Sri Lanka also imported labour when the country had a currency board, before a central bank through which inflationist macro-economists could cut rates was set up soon after independence, condemning the country to capital controls, trade restrictions and frequent IMF programs.

Sri Lanka’s central bank has allowed the rupee to re-appreciate, bringing down food and other prices, boosting real wages while firms are also raising salaries amid the monetary stability provided.

Analysts had warned that under the current operational framework, where rates are cut when inflation falls to low levels, the currency will be hit when private credit recovers and inflationary domestic operations are deployed to suppress interest rates.

Sri Lanka’s macro-economists, by promoting various narratives (the budget deficit – blame the politicians), there is a current account deficit – blame the citizens who are net savers and the most widely spread story that there is a ‘structural’ problem) have denied a sound monetary regime to the people, critics say. (Colombo/Apr25/2024)

Import licenses will be given for 2,000 metric tonnes of the seed classified under HS Code 7312.31.22 and 29.

Sri Lanka State Trading Corporation, National Food Promotion Board and Sri Lanka Hadabima Authority is to be given import licenses.

Traders have resorted to smuggling some types of black gram (ulundu) mis classified as chick peas, to get over high taxes and import restrictions.

Tamil legislators have also protested the import controls, which they go into several key ethnic foods they consume. (Colombo/Apr23/2024)

During the consultations, “the two sides prioritized expanding economic cooperation, focusing on apparel, gems and jewelry, tea, food and beverages, wellness and ayurvedic products, education services and ICT sectors,” Sri Lanka’s Ministry of Foreign Affairs said in a statement.

“The two sides also discussed the potential for the promotion of tourism to facilitate connectivity and to strengthen people to people linkages.”

Cooperation at multilateral and regional fora and developments in the respective regions and current global issues were among the other areas taken up for discussion.

This is the first high-level visit to take place between the two countries since Sri Lanka established diplomatic relations with the Kyrgyz Republic in 1996.

The consultations are part of Sri Lanka’s initiative to strengthen bilateral ties with Central Asia region countries.

Foreign Secretary of Sri Lanka Aruni Wijewardane and Deputy Minister of Foreign Affairs of the Kyrgyz Republic Avazbek Atakhanov co-chaired the consultations.

Wijewardane also met with the Vice President and members of the Kyrgyz Chambers of Commerce and agreed on an inaugural meeting between the two Chambers to be convened virtually with a view to strengthening trade and investment connections. (Colombo/April16/2024)

“The exemption for Sri Lanka reiterated India’s Neighbourhood First policy, adding to the Sinhala and Tamil New Year festivities here,” the statement said.

Onion prices went up in Sri Lanka after India and Pakistan banned exports.

The Directorate General of Foreign Trade has issued a notice allowing National Co-operative Exports Limited to ship 10,000 MT of onions.

The UAE has also been allowed to import 10,000MT of onions on top of 24,400MT already permitted.

A large Indian and South Asian expat community lives in the UAE. (Colombo/Apr15/2024)

Ambassador Indra Mani Pandey, Secretary General of BIMSTEC visited Sri Lanka from 07 – 12 April 2024, following his assumption of office as Secretary General of BIMSTEC in January this year.

The Secretary General “met with senior officials of relevant Ministries/Agencies to discuss measures to enhance regional cooperation under various BIMSTEC initiatives,” the Foreign Ministry said in a statement.

Several BIMSTEC countries have bilateral trade agreements, such as Sri Lanka and India, Thailand and Myanmar, Sri Lanka and Thailand, but no collective regional agreement to enable intra-regional leverage.

During the visit, Secretary General Pandey held discussions with Ministry of Foreign Affairs officials and paid courtesy calls on the President and the Minister of Foreign Affairs.

Secretary General Pandey participated at an event on “Regional Cooperation through BIMSTEC” organized by the Lakshman Kadirgamar Institute (LKI) on 9 April. (Colombo/April15/2024)

The island nation, which is self sufficient in rice production, imports the staple food from time to time when there is scarcity or the traders stubbornly maintain high prices at retail level.

President Ranil Wickremesinghe’s government reduced import tax on rice by 65 rupee per kilo to 1 rupee in January this year to import some rice and control high domestic prices.

The move came after millers and collectors drove up the price due to lack of free trade.

However, State Finance Minister Siyambalapitiya said no permission has been given for the import of rice and only the required quantity of Basmati rice has been given for the needs of tourist hotels.

“…the minister mentioned that the government gave an opportunity to import rice when there was a risk of rice shortage last February,” the Finance Ministry said in a statement quoting the minister at an event.

“At that time, a quantity of rice that had been brought a few days later was stuck in the port. So, the minister mentioned that although he was given a week’s time to release that quantity of rice, that time has now expired.”

The government’s import tax reduction on rice was effective only through January 21, 2024.

Sri Lanka controls the import of rice to keep domestic prices artificially high.

Majority of Sri Lankans do not like value added tax. However, most of them do not bother over taxes imposed on basic food for economic nationalism.

There are also economic nationalism taxes as well as import duties on maize, which pushes up animal feed prices, chicken, egg and dairy products citing that those taxes will protect domestic producers.

However, analysts say producers at farm gate level never get the benefits of higher prices paid by consumers due to multiple layers of intermediaries. (Colombo/April 15/2024)

Sri Lanka’s exports in February 2024 was 1,059 million US dollars, up 7.9 percent from 982 million dollars a year ago while imports surged 35 percent to 1,378 million US dollars, giving trade deficit of 319 million dollars.

Academics, politicians and many commentators rail against trade deficits, claiming it leads to currency depreciation or that it is a ‘problem’ of some kind, regressing back to classical mercantilism.

However no foreign shipper will actually send goods to Sri Lanka without being paid in dollars, except for short term suppliers’ credit. Sri Lanka’s petroleum ministry has asked new petroleum distributors to delay payments for one year.

The dollars have to be earned in some way to spend on imports.

The trade deficit is triggered when people spend income from tourism, IT services and worker remittances, or when government borrowings to finance infrastructure, none of which create any pressure on the currency.

Services inflows for February were calculated at 593 million dollars for February, and outflows 193 million dollars, giving a services account surplus of 400 million US dollars (before any errors and omissions).

Worker remittances were another 476 million dollars.

Modern ‘economists’ usually rail against the ‘current account’ deficit, claiming that it leads to currency depreciation or that it is a ‘problem’ of some kind in a neo-Mercantilist revision of the classical idea.

The central bank is has started releasing broader balance of payments data from February 2024, which can help bust mercantilist myths, dating back to the 17th century, before classical economics was devised by the likes of Adam Smith and David Ricardo.

In most countries current account deficits are mostly driven by government borrowings, which are invested or spent domestically. Countries like the US, which receive large volumes of FDI may also have current accounts driven by private flows.

Third world countries with bad central banks also have capital controls, which means domestic savers cannot invest abroad, therefore private citizens cannot contribute a current account surplus by investing out.

Therefore, outward financial payments take place through central bank reserve collection or government debt repayments.

Countries with third world countries when governments borrow abroad, with private parties being blocked from investing out due to exchange controls.

In countries with depreciating central banks, where domestic lifetime real savings are destroyed by currency depreciation and governments usually borrow abroad, despite 20 percent plus private savings rates.

Currencies weaken due to balance of payments deficits triggered from central bank domestic operations to cut rates artificially through inflationary open market operations and standing facilities or both.

Inflationary open market operations to mis-target rates makes it impossible to make outward payments including to repay debt, leading to defaults.

To repay debt or collect reserves, domestic investments have to be curbed at an appropriate rate, which cannot be done if money is printed to cut rates claiming inflation is low, through spurious monetary doctrines involving anchor conflicts, critics say.

To run a balance of payments surplus, domestic operations of a note issue bank has to be deflationary involving a net sell down of domestic assets of the central bank at a required market rate.

Up to February Sri Lanka’s central bank ran a 317 million US dollar balance of payments surplus with the help of deflationary policy and also allowed the currency to appreciate.

Third world bad-money central banks usually do not allow currencies to appreciate even when deflationary policy is in play, in the inflationist-devaluationist belief that debasement help exports, despite overwhelming evidence from East Asia that it is long term monetary stability that helps drive foreign and local investments to build the required capacity and know-how.

Most East Asian reserve collecting central banks run consistently deflationary operations, selling their own securities (Bank Negara Bills, MAS Bills, HKMA Exchange Fund bills and notes) to mop up inflows instead of conducting inflationary open market operations with government securities and scapegoating budget deficits under flexible inflation targeting and similar dual anchor regimes to mis-target rates critics say. (Colombo/Apr10/2024 – corrected Third world countries with bad central banks also have capital controls, which means domestic savers cannot invest abroad)