Sri Lanka’s Central Bank responds to concerns over foreign debt measurements

June 14, 2014 (LBO) – Sri Lanka’s Central Bank has responded to recent warnings over rising foreign debt by the government and other entities. The Central Bank said its analysis was based on central government debt. It points out that excluding inflows such as remittances also does not present a correct picture.

Even more than exports – which tend to have a lot of imported components including energy- remittances are money fully available for domestic consumption and saving and therefore repayment of debt.

LBO’s economic analyst fuss-budget says comparing parameters such as trade flows, exports and imports to the debt repayment ability of a government is a long-held misconception involving Mercantilist analysis of balance of payments.

Ability to repay foreign debt by a government is fundamentally a credit issue involving its tax revenues, its capacity to reduce spending or roll-over or raise either international or domestic debt and has little to do with the export revenues of private firms.

The same applies to households with family members working abroad.

However their profits or savings could be captured by the stat