Sri Lanka’s Surplus: Foreign Exchange Earnings Exceed Imports

Sri Lanka Foreign Exchange Earnings 2024: Surpassing Imports by $611 Million

Sri Lanka’s foreign exchange earnings in May 2024 surpassed imports by $611 million. The country’s earnings from exports, remittances, and gross services totaled $2,016 million, while imports amounted to $1,404 million. Specifically, exports reached $1,011 million, remittances were $460.1 million, and gross services from tourism stood at $460.1 million. After deducting outward tourism and transport costs, the net services account surplus was $230.3 million. Thus, total inflows from exports, remittances, and net services were $1,786 million, exceeding merchandise imports by $318.4 million.

The increase in revenue from tourism and remittances typically drives higher imports of food, fuel, and other goods, potentially leading to a trade deficit. Government spending on infrastructure, funded by foreign borrowings, also boosts imports of materials like cement and steel. Private credit further increases imports as savings are converted into investments in buildings, vehicles, or machinery.

Despite these factors, there is no pressure on the currency because the balance of payments is not in deficit. Sri Lanka recorded a balance of payments surplus of $1,364 million up to May 2024, slightly lower than the $1,597 million surplus in 2023. Currency pressure usually arises when money is printed under flexible inflation targeting or other inflationary policies aimed at potential output. This monetary instability is often misattributed to deficits or imports by inflationists and Mercantilists, although the banking system cannot distinguish between private and official credit.