The Central Bank just released the first six months of trade data for Sri Lanka. Trade is an important component of the Balance of Payments (BOP). Which computes the sum of a countries transactions with the rest of the world.
Sri Lanka’s BOP is perpetually in the red. In 2011, massive imports in consumer durables and investment goods made the negative balance worse. High imports last year were facilitated by low interest rates and a propped up exchange rate. But this year the government has tried to discourage imports by floating the rupee, increasing interest rates and actively discouraging banks from lending with a lending cap. There’s also the new taxes on vehicle imports that, together with other restrictions have just begun to impact durable imports in a big way.
The revenue the government gets from vehicle imports is important for its budget deficit (which is total government revenue less its spending). An increase in taxes like we’ve just seen is likely to actually reduce government revenue even further because potential vehicle owners will be completely discouraged to buy.
But so far this year, imports have failed to ease up as much as they were hoped to. And floundering global economies have reduced the demand for our exports. Globally, fuel prices are looking to rise but this will impact fuel imports less than local demand which is likely to increase the more we use thermal power in response to our ongoing electricity problem.