Sri Lanka’s forex reserves US$8.1bn; BOP surplus up with weak credit

May 26, 2014 (LBO) – Sri Lanka’s balance of payments surplus or the gap between international receipts and payments widened to 828.8 million US dollars, the Central Bank said as weak domestic credit dampened imports. However when credit is weak not all of the inflows are spent, generating excess liquidity in the domestic money markets and higher foreign reserves.

Foreign reserves were estimated at 8.1 billion US dollars, easing down from 8.25 billion US dollars in February, amid repayments to the International Monetary Fund.

Sri Lanka earned 2.8 billion US dollars from exports, 1.66 billion US dollars from worker remittances (exports of labour), 609 million dollars from tourism, while gross inflows to the government (exports of debt) were 2.23 billion US dollars.

Imports were up 3.6 percent but the trade gap fell 13.5 percent to 1.86 billion US dollars in the first quarter.

A trade gap is generated when foreign inflows from outside the merchandise trade account is spent by domestic agents. Sri Lanka’s key triggers for the trade deficit are worker remittances and Treasury’s foreign borrowings.