Sri Lanka 2012 trade gap narrows, growth may be hit

Sri Lanka’s trade deficit narrowed last year, central bank data showed on Monday, helped by a more flexible exchange rate, credit ceiling and tight monetary policy, though such measures likely took their toll on economic growth.

The island nation’s trade deficit narrowed 4.1% to $9.31 billion from a record $9.71 billion in 2011.

The International Monetary Fund delayed a tranche of a $2.6 billion loan in the second half of 2011 and the central bank was compelled to free up the exchange rate in February last year to avoid a balance-of-payments crisis.

Rising prices

The central bank also raised key monetary policy rates twice and limited annual credit growth to 18% to discourage cheap imports. The government raised the price of fuel, gas, electricity, and import duties on vehicles to reduce the imports bill.

Imports in 2012 declined 5.8% to $19.09 billion while exports slumped 7.4% to $9.77 billion.The central bank has said the policy measures have hit economic growth, which is expected to have declined to 6.5% last year from a record 8.3% in 2011.

In December, the trade deficit narrowed 32% to $641.2 million from the same month a year earlier. December imports fell 19.4% to $1.51 billion while exports declined 6.7% to $871 million.

© Reuters/Live Mmint



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