ECONOMYNEXT – Sri Lanka hopes to boost foreign inflows in the near future through investment, remittances and tourist arrivals, Cabinet co-spokesperson Ramesh Pathirana said as imports peaked 17 months in July, as money printing boosted credit and created currency shortages. .
Sri Lanka faces a severe external crisis as well as a domestic crisis with declining revenues and spending continuing to rise, amid a coronavirus crisis, Finance Minister Basil Rajapaksa told parliament last week as printing money triggered currency shortages and made repayment difficult. external debt
Credit from the Central Bank to government or to printed money increased 157% to Rs.1.4 trillion, inserting new rupee reserves into the banking system to stimulate unsustainable lending and imports, pushing outflows to the top. over dollar inflows and putting pressure on the rupee.
Private credit increased 14.9 percent to 6.6 trillion rupees in the year through July 2021, and government borrowing from the banking system outside the central bank soared 26.7 % to 4.00 billion rupees.
Despite import controls, credit pushed imports to a 17-month high of US $ 1.7 billion.
The central bank’s net foreign exchange reserves had fallen to 10.3 billion rupees in July (around 51 million US dollars) and were on the way to negative.
President Gotabaya Rajapaksa has appointed his younger brother Basil as finance minister to deal with the ever-worsening twin deficits in the external and internal sectors.
“There is no significant change in policy,” Minister Pathirana said during a weekly cabinet press briefing when asked if the government was considering changes in economic policy after the minister of the Finance has identified the main weaknesses of the economy.
“I hope that we are keeping our fingers crossed and looking forward to receiving investments as well, and that foreign remittances also increase in the coming time.”
Foreign remittances also fell, chased after parallel exchange rates developed amid money printing. The official exchange rate is 203 rupees to the US dollar and the parallel market and traditional cross-border payment systems (Undiyal) are around 230-240 to the US dollar.
“The world as a general phenomenon emerging from this pandemic scenario, I hope we will attract tourists to this country by November-December and generate much needed dollars in the local economy.
“This is the way to go. And also specific plans would be detailed in the 2022 budget. ”
Government revenues were below target and state spending had increased, said Finance Minister Rajapaksa.
In the six months to June, revenue reached Rs 714 billion, up from Rs 663 billion last year, but was 20% lower than 2019, before tax cuts were made for the stimulus. In the first six months, only 35% of the 2,019 billion rupees of expected income was collected.
The government was rationalizing spending, with a hiring freeze and cost management, Minister Rajapaksa told parliament.
In August, foreign exchange reserves reached 3.5 billion rupees from 2.8 billion thanks to a swap of 150 million dollars from Bangladesh and about 800 million dollars of special drawing rights from the IMF. However, on a net basis, the country has almost zero reserves.
The currency shortages arose despite record exports.
“Fortunately, our exports have increased a bit in all sectors, including clothing, plantations and also other sectors,” said Pathirana.
President Gotabaya Rajapaksa appointed former minister of state Ajith Nivard Cabraal as head of the central bank as of Wednesday (15) in a bid to resolve the economic problem.
“I will focus on stability and growth first,” Cabraal told EconomyNext.
The central bank has already restricted many items it has defined as non-essential to the public, as money printing has boosted credit and imports.
There is no interbank spot market for currencies and forward hedging has been banned.
Sri Lanka has rejected a bailout package from the International Monetary Fund.
Parliament also passed a law last week to allow Sri Lankans to bring their hidden money from foreign countries with just 1% tax and invest in the country while ensuring the anonymity of these people. (Colombo / Sep 14, 2021)