Mar 06, 2011 (LBO) – Sri Lanka’s foreign reserves were 6.6 billion US dollars by end January 2011, the same level as in December, the Central Bank said, as trade and economic activity expanded. The central bank said the reserves were equal to 5.9 months of imports of the past 12 months of 1,108 million US dollars, slightly lower than the 6.0 month figure for December 2010.
Sri Lanka’s external trade has expanded in 2010 with a resurgence of economic activity following a slump in 2009, and the trade gap expanded 66 percent to 5,204 billion US dollars from 3,122 billion a year earlier.
But the trade deficit is just a part of the balance of payments, which includes remittances and capital inflows, which provide the purchasing power for people and the state to spend on imports.
Remittances a key source of income which help drive the trade deficit by boosting domestic demand, rose 23.6 percent to 4.1 billion US dollars in 2010. The government is usually a net borrower of capital especially for capital projects. The trade deficit also expands when the government deficit spends with foreign borrowing.
Sri Lanka has a pegged exchange rate and the January foreign reserves were almost