Sri Lanka to see BOP surplus: CB

28 September 2011 04:15 am - 1     - {{hitsCtrl.values.hits}}

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Sri Lanka will see a balance of payment (BOP) surplus in 2011 despite a high trade deficit as foreign direct investment, workers’ remittances and inflows into government accounts all pick up, the Central Bank Colombo said on Tuesday. 

The trade deficit in the first seven months jumped 78 percent to $5.08 billion compared to $2.86 billion in the same period a year ago. The seven-month figure is 75 percent of the total estimated trade gap of $6.76 billion for the full-year. 

“We will see a balance of payment surplus this year,” Swarna Gunaratne, the acting director at central bank’s economic research department said to a news agency.

“The high trade deficit will be compensated by all other inflows,” he added.

In the first seven months, the $50 billion economy has seen a 72.4 percent rise in government inflows to $2.75 billion year-on-year, mostly from project-related loans and grants, a 25.6 percent gain in worker remittances to $2.92 billion, and a 98.6 percent jump in foreign direct investments (FDI) to $413 million.

The International Monetary Fund (IMF) early this month asked the central bank to allow flexibility in foreign exchange by limiting the bank’s intervention due to a steady decline in non-borrowed reserves amid the high trade deficit.

However, the central bank had defended its intervention in the foreign exchange market, saying the expected inflows will help the rupee to appreciate further.

The island nation saw a record trade deficit of $5.98 billion in 2008 when the oil prices jumped to nearly $150 a barrel.

In 2008, the central bank sold dollars to prop up the rupee, but eventually had to allow the currency to depreciate after the country’s reserves fell sharply. 

Sri Lanka saw a $1.4 billion balance of payment deficit in 2008, before it agreed to $2.6 billion IMF loan to increase its depleted reserves.

The structure of government tax revenue is an indicator of the specific investment spheres of the private sector from which government tax revenue is mostly derived. The tax revenue structure illustrates that a significantly large portion of consumer tax income comes from import-led activity.

In 2009, approximately 80.9 percent of government consumer tax revenue (which accounts for nearly 80 percent of the government’s total revenue) was derived through imports; and the latter figure during the last ten years has averaged 78.6 percent.

The heavy dependency of government revenue on the import trade creates an inverse link between the fiscal deficit and the balance of trade deficit of the economy.

The escalating trade deficit in 2010 caused government revenue to increase significantly owing to the positive relationship, which prevails between government revenue and the balance of trade deficit. (Source: Gulf Today)
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  • Big Ears Wednesday, 28 September 2011 04:33 AM

    Why take loans from India and China?


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