16 March 2017 12:01 am
Almost all the dollars earned by over a million housemaids auctioning their sweat and blood in the Middle East and the dollars spent by around two million tourists annually visiting the country are just getting evaporated as import-dependent Sri Lanka has made a huge hole in its trading basket.
Sri Lanka’s most recent external trade data showed that the worker remittances together with the earnings from tourism earned US $ 9.7 billion during the 11 months to November 2016, recording an increase of 7.0 percent year-on-year (YoY).
But these earnings are waiting just to be swallowed up by the deepening hole in the trade account where the trade deficit — the amount by which the cost of a country’s imports exceeds the value of its exports —expanded from US $ 7.6 billion in the previous year to US $ 8.1 billion, an analysis carried out by First Capital Research, the research arm of the First Capital
group, showed.
According to analysts, the situation needs to be arrested sooner than later amid the country’s financial account seeing continuous outflows from the government securities market and the massive foreign debt load, which will only get expensive with the
weakening rupee.
The situation is likely to get tougher with the near certain hike in the Federal Reserve rates today at least by a quarter percentage point.
The US $ 445 million in foreign direct investment (FDI) for last year has been the worst since the conclusion of the conflict in 2009. Policy inconsistency and mixed signals coming from the coalition government arguably made a big role in this.
Sri Lanka’s flagging export earnings declined 2.8 percent during the first 11 months of 2016 with agricultural, industrial and other categories falling by 1.4 percent, 7.2 percent and 11.6 percent, respectively, on a
YoY basis.
But the imports continued to rise as the 11 months’ import bill rose 1.7 percent YoY with only consumer goods imports declining by 8.4 percent YoY.
The resulting impact of all these negative developments has resulted in the balance of payment (BoP) turning a negative US $ 635 million, albeit better than a negative US $ 1.3 billion in 2015, but worst since 2014, where the BoP recorded a surplus of US $ 1.4 billion.
With over US $ 3.0 billion foreign debt repayments a year, economists warn that the external sector could only get worse unless remedial actions are
taken soon.
In a bid to avert a possible debt crisis, the government has decided to halt all major infrastructure projects financed by external debt with
immediate effect.