Nov 05, 2012 (LBO) – Sri Lanka’s exports fell 6.6 percent to 801.5 million US dollars in September 2012 from a year earlier while imports fell at a faster 25.4 percent to 1.31 billion US dollars, official data showed. Sri Lanka ran into a balance of payments crisis from mid 2011 when authorities printed money to sterilize foreign exchange sales as large volumes of credit were taken by state enterprises to manipulate energy tariffs.
But in February 2012, energy tariffs and interest rates were raised, and sterilized foreign exchange sales were gradually scaled down. The rupee fell from 110 to 134 levels to the US dollar before moving back to 130 levels.
The finance ministry also jacked up taxes on cars through a mid nigh gazette singling out the item in a display Mercantilist policy making.
Analysts say the total volume of imports would not fall due to a jacking up of car taxes, as credit that would have gone for cars would be used for other activities including construction which in turn would trigger imports.
But raising interest rates and currency depreciation (which makes everyone poorer) act neutrally to slow economic activity and rebalance imports to fit the export earnings.
The Central B