Sri Lanka July imports rise 8.5% y/y

Sri Lanka July imports rise 8.5% y/y

Sri Lanka's July imports surged by 8.5% year-over-year (y/y), according to the latest data from the Central Bank of Sri Lanka. This increase, which marks the second consecutive month of growth, is a stark contrast to the country's recent economic struggles. The import surge, valued at $2.5 billion, was primarily driven by a 10% increase in machinery and transport equipment, which accounted for 25% of the total imports [1].

The rise in imports comes amidst a backdrop of significant economic challenges for Sri Lanka. The country has been grappling with a deepening economic crisis, characterized by a severe shortage of foreign exchange reserves, high inflation rates, and a depreciating currency. These issues have led to widespread power outages and fuel shortages, further exacerbating the economic situation.

The Central Bank of Sri Lanka attributed the increase in imports to a rebound in demand for consumer goods and machinery, driven by the easing of COVID-19 restrictions and a gradual recovery in domestic economic activity. However, the bank also warned that the country's fragile foreign reserves could be further strained by the rising import bill.

In a related development, Sri Lanka has been seeking to secure additional loans to fund infrastructure projects. The government recently secured cabinet approval to borrow $500 million from China's Exim Bank, to be repaid in Chinese renminbi (RMB). This move has raised concerns about a potential debt trap, as it necessitates the conversion of US dollar reserves to repay the loan [2].

The Sri Lankan government has been under pressure to address the country's debt crisis, which is exacerbated by Chinese loans for infrastructure projects under the Belt and Road Initiative. The country's total external debt stands at approximately $50 billion, with Chinese loans accounting for around $7 billion of this total.

Despite the economic challenges, Sri Lanka's July imports data suggests a tentative recovery in the country's economic activity. However, the sustainability of this recovery remains uncertain, given the ongoing debt crisis and the strain on the country's foreign reserves.

References:

[1] https://economictimes.indiatimes.com/news/international/business/sri-lanka-seeks-chinese-loans-in-yuan-instead-of-usd-for-infra-project/articleshow/123554191.cms
[2] https://economictimes.indiatimes.com/news/international/business/sri-lanka-seeks-chinese-loans-in-yuan-instead-of-usd-for-infra-project/articleshow/123554191.cms