ECONOMYNEXT – Sri Lanka’s merchandise exports soared 24.17 percent to 12.47 billion US dollars in 2021 official data showed, as the country is mired in the worst foreign exchange shortages in recent memory, driven by money printed to maintain fixed interest rates.
“Hard work and commitment of industrialists along with the Government decision of speedy vaccination of country’s workforce started yielding results,” Trade Minister Bandula Gunewardene was quoted as saying by Sri Lanka’s Export Development Board.
The steep growth in exports and worsening forex shortages have shattered Mercantilist claims that a higher level of exports and a ‘production economy’ would solve the country’s currency troubles, created by discretionary independence given to the central bank to print money.
Analysts using classical economic principles had warned that increasing exports would lead to more imports as the recipients of the money spent them on goods and services though it would not cause any currency troubles.
However if money was printed to pay the expanding public sector workers or for any other purpose the currency would come under pressure and reserves would be lost, even as exports go up.
In December 2021 Sri Lanka’s merchandise exports had increased by 16.71 percent from a year earlier to US dollars 1,125.69 million. It was also a 12.48 percent increase from 2019.
Imports in December have been estimated at 2.2 billion US dollars after two months of sterilized interventions (giving central bank foreign reserves for imports and printing an equal or higher amount of money to keep rates down) as well as earnings from services and remmittances.
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Sri Lanka’s exports had been rising in 2021 partly due to higher global prices, fired by money printing in the US. The Fed has said it will stop money printing in March after inflation hit a 40 year high.
Domestic demand in the US and EU areas has been driven up artificially with liquidity injections and stimulus cheques with no accompanying production (an aggregated demand bubble), leading to supply chain bottlenecks around the world and high prices.
The Fed then falsely claimed it was ‘transitory’ but later admitted it was to blame.
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Read More: Sri Lanka Merchandise exports soar 24-pct amid severe forex shortages