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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Sri Lanka’s import cover too low?

Sri Lanka’s import cover too low?

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CHRONICLE™

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Sri Lanka’s import cover too low? 1a25e410

Sri Lanka Gross Official Reserve Cover for months of imports stood at 3.1 months as at April 2021. Is this too low? The media has portrayed the decline in reserves and import cover as a liquidity crisis, creating a negative image that can be very harmful to business sentiment and the economy.

The months of import cover indicates the number of months of imports that can be covered by the reserves held at the central bank. However, the central bank reserves are not directly used for the finance of imports. It is merely an indicator showing the reserves relative to imports, for the ease of comparison between countries.

When we compare Sri Lanka's import cover with developed countries such as the United Kingdom, Netherlands, Germany and Australia we observe that the island has a higher import cover. These developed countries have continued to have lower import cover than Sri Lanka for the past 10 years. It is important to understand the indicator and view it in a global context prior to making a judgment of whether it is negative or not.

#lka #reserves #srilanka #importcover #economy #srilankaeconomy #centralbank #liquidity #SLEconomy

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dayandacool

Post Mon Jul 05, 2021 10:42 am by dayandacool

CHRONICLE™ wrote:

Sri Lanka’s import cover too low? 1a25e410

Sri Lanka Gross Official Reserve Cover for months of imports stood at 3.1 months as at April 2021. Is this too low? The media has portrayed the decline in reserves and import cover as a liquidity crisis, creating a negative image that can be very harmful to business sentiment and the economy.

The months of import cover indicates the number of months of imports that can be covered by the reserves held at the central bank. However, the central bank reserves are not directly used for the finance of imports. It is merely an indicator showing the reserves relative to imports, for the ease of comparison between countries.

When we compare Sri Lanka's import cover with developed countries such as the United Kingdom, Netherlands, Germany and Australia we observe that the island has a higher import cover. These developed countries have continued to have lower import cover than Sri Lanka for the past 10 years. It is important to understand the indicator and view it in a global context prior to making a judgment of whether it is negative or not.

#lka #reserves #srilanka #importcover #economy #srilankaeconomy #centralbank #liquidity #SLEconomy


This statistic needs to be viewed with how much they spent for imports of essentials such as Medicines, Foods ect from other countries as most of the above mentioned countries do produce the aforesaid in abundance and have an excess to export as well. Correct me if I am wrong. In such a context, It is a dire need of a country like SL to maintain a steady import cover and this can't be viewed as a betterment compared to the mentioned countries.

RJ1010 and Nandun like this post

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Post Mon Jul 05, 2021 3:05 pm by Nandun

CHRONICLE™ wrote:

Sri Lanka’s import cover too low? 1a25e410

Sri Lanka Gross Official Reserve Cover for months of imports stood at 3.1 months as at April 2021. Is this too low? The media has portrayed the decline in reserves and import cover as a liquidity crisis, creating a negative image that can be very harmful to business sentiment and the economy.

The months of import cover indicates the number of months of imports that can be covered by the reserves held at the central bank. However, the central bank reserves are not directly used for the finance of imports. It is merely an indicator showing the reserves relative to imports, for the ease of comparison between countries.

When we compare Sri Lanka's import cover with developed countries such as the United Kingdom, Netherlands, Germany and Australia we observe that the island has a higher import cover. These developed countries have continued to have lower import cover than Sri Lanka for the past 10 years. It is important to understand the indicator and view it in a global context prior to making a judgment of whether it is negative or not.

#lka #reserves #srilanka #importcover #economy #srilankaeconomy #centralbank #liquidity #SLEconomy
According to my knowledge import cover can't describe whole picture import cover depend on the country's strategy
https://www.ceicdata.com/en/indicator/foreign-exchange-reserves-months-of-import

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Post Mon Jul 05, 2021 3:35 pm by SAGA

one of my good friend is in Central Bank at top level and he too doesnt agree with that we are facing foreign reserve threat.what he says is that the government is trying to promote local industries and people creating stories on Foreign reserves are base less..I dont know up to what level that is true.personnely believe that we were at its worst when we had war with LTTE.Its strange that we face the same after post war.

avatar

Post Mon Jul 05, 2021 4:41 pm by samaritan

SAGA wrote:one of my good friend is in Central Bank at top level and he too doesnt agree with that we are facing foreign reserve threat.what he says is that the government is trying to promote local industries and people creating stories on Foreign reserves are base less..I dont know up to what level that is true.personnely believe that we were at its worst when we had war with LTTE.Its strange that we face the same after post war.
Agree. CB Governor had this to say few days back;


"Overall, I wish to assure the media, the general public, the business community and the investor community that the conditions of foreign currency liquidity observed in the domestic market at present are temporary and are driven by excessive speculative activity. We request these operators in the market to remain calm and not fuel undue speculation, which is not in the national interest, as the careful management of the situation without undue disruption, will result in a beneficial outcome to the country as a whole".


Link to the full statement:
https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20210628_statement_by_governor_on_foreign_currency_liquidity_in_domestic_market_e.pdf

dayandacool

Post Mon Jul 05, 2021 6:48 pm by dayandacool

SAGA wrote:one of my good friend is in Central Bank at top level and he too doesnt agree with that we are facing foreign reserve threat.what he says is that the government is trying to promote local industries and people creating stories on Foreign reserves are base less..I dont know up to what level that is true.personnely believe that we were at its worst when we had war with LTTE.Its strange that we face the same after post war.

Your statement is optimistic. I can agree with you if we manufacture mobile phones and TVs in SL, if they are to promote local production. Do you really think the government Ban of chemical fertilizer is due to the fact that they care more about people's health or is it just for the mere fact that they do not have reserves to purchase fertilizer? Given the haphazard manner in which the Ban came in to force overnight, I would say it's definitely the latter. If they care for health of the citizens, they wouldn't open up Mendis distilleries just to collect the excise. So much for caring of health. Very Happy Very Happy Very Happy

It is true that the government revenues have reduced due to pandemic. We all agree to that. Government doesn't need to hide behind lies. Accept it and tell people the truth for what they will support the government for another 3 years. If they keep on lying, they are dragging the country down with them. I wouldn't be surprised even if they opted for a IMF bailout despite repeating that they won't seek such assistance because government has never done what they say and never say what they done. Ego is a bad thing.

avatar

Post Mon Jul 05, 2021 9:13 pm by SAGA

The main thing is  that any government cant ban imports from another  country due to trade deals. For an example we cannt ban vehicle imports from Japan since the trade agreements and if such thing happens it will affect us since Japan will take counter measures in turn(they might ban our exports).Same thing with India,UK,US and China etc  also..Thats the simple truth.So we need to find more strong , more viable case for such restrictions..I think foreign reserve decrease would be a reasonable logic.

if the government really need to boost local industry ,this would be  an ideal time since this foreign reserve decrease has become a "Talk of the town" and people accepted it as the cause for ban of imports whether its  true or not.

We increased the local diary production due to contamination of milk powder  in the past  likewise this would be ideal time for increase the domestic production if they genuinely intend it.

dayandacool

Post Mon Jul 05, 2021 11:05 pm by dayandacool

SAGA wrote:The main thing is  that any government cant ban imports from another  country due to trade deals. For an example we cannt ban vehicle imports from Japan since the trade agreements and if such thing happens it will affect us since Japan will take counter measures in turn(they might ban our exports).Same thing with India,UK,US and China etc  also..Thats the simple truth.So we need to find more strong , more viable case for such restrictions..I think foreign reserve decrease would be a reasonable logic.

if the government really need to boost local industry ,this would be  an ideal time since this foreign reserve decrease has become a "Talk of the town" and people accepted it as the cause for ban of imports whether its  true or not.

We increased the local diary production due to contamination of milk powder  in the past  likewise this would be ideal time for increase the domestic production if they genuinely intend it.


We will find the answer in 6,7 months when they start importing V8's  Very Happy Very Happy Very Happy

avatar

Post Mon Jul 05, 2021 11:28 pm by ONTHEMONEY

Hi all, 

I sense the BELOW INFORMATION would be VERY USEFUL for EVERYONE to UNDERSTAND the SITUATION

How the Govt. is EXPECTING to manage the debt payments: 

Confirmed Inflows from end May 2021 to End December 2021: 
Exports: USD 6.6 bn 
Remittances (net): USD 4 bn
China SWAP: USD 1.5 bn
SARC SWAP: USD 400 mn
Bangladesh SWAP: USD 200 mn
IMF: USD 780 mn
Total inflows from May to December 2021: USD 13.5 bn (worst case scenario) 

Other possible inflows: 
Port City construction inflow (net): USD 500 mn
Possible tourism (if vaccination plan comes through by Sept): USD 400 mn
India SWAP: USD 1 bn
Total inflows (optimistic scenario) from May to December 2021: USD 15.4 bn

Outflows from end May to end December 2021: 
Imports: USD 11.5 bn
Debt payments: USD 2.6 bn
Total outflows from end May till End December: USD 14.1 bn

End May Reserve position: USD 4 bn 

Thus, reserves position at the end of 2021 will be at USD 3.4 bn even at the worst case scenario. Under the optimistic scenario, it could go upto USD 
5.3 bn. The actual could be between these two figures. 

But due to mismatch of inflow and outflow timing, reserves may go up or down from the year end estimate during the year. 

Going to the IMF: Sri Lanka can go to IMF anytime. Sri Lanka lost Tourism income for three years now (2019, 2020, 2021 so far). If the vaccination drive continues at this rate, we might be able to open up for tourism by end September. But the Government should not rely on this alone and must source other borrowings and SWAPs to ensure smooth sailing till at least mid of 2022. 

So far only two countries Argentina and Ecuador has gone to IMF for restructuring. 

So without fear mongering, we should support the vaccination drive that the Government has so far been extremely successful, understand the actual situation, that these are difficult times and do our bit to help the country get through.

Good Luck 

CHRONICLE™ and RajapaksaDON like this post

dayandacool

Post Mon Jul 05, 2021 11:52 pm by dayandacool

Just to add to my earlier argument, for those who think that the ban of fertilizer was a planned move, find below extract from his Excellency's manifesto Vistas of prosperity and splendor which states the ban would be done systematically within a period of 10 years. Seems like the Government has decided to speed up the journey to splendor by banning them overnight  Sri Lanka’s import cover too low? 1f600  Sri Lanka’s import cover too low? 1f600 

Sri Lanka’s import cover too low? Organi10

CHRONICLE™ and RajapaksaDON like this post

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Post Tue Jul 06, 2021 8:43 am by SAGA

the main purpose of this discussion is to find out whether our foreign reserve are clearly stated or not.(the story of 3 month sufficiency for 3 months).
Not to give our political view.
Also to see the possible scenarios for the government if the statement is true(if its only sufficient for 3 months of imports).ultimately what we need is better decisions from the government for the benefit of the people



dayandacool likes this post

dayandacool

Post Tue Jul 06, 2021 9:01 am by dayandacool

"the main purpose of this discussion is to find out whether our foreign reserve are clearly stated or not"

Do you have any doubts as to the stated values are true or not? Shocked

"ultimately what we need is better decisions from the government for the benefit of the people"


True, better decisions, not hasty, haphazard ones. and as citizens, we should have the right to criticize when the said decisions are not aimed at serving people.Calling a spade a spade is not politics!!!

dayandacool

Post Sun Jul 11, 2021 8:24 am by dayandacool

dayandacool wrote:
SAGA wrote:one of my good friend is in Central Bank at top level and he too doesnt agree with that we are facing foreign reserve threat.what he says is that the government is trying to promote local industries and people creating stories on Foreign reserves are base less..I dont know up to what level that is true.personnely believe that we were at its worst when we had war with LTTE.Its strange that we face the same after post war.

Your statement is optimistic. I can agree with you if we manufacture mobile phones and TVs in SL, if they are to promote local production. Do you really think the government Ban of chemical fertilizer is due to the fact that they care more about people's health or is it just for the mere fact that they do not have reserves to purchase fertilizer? Given the haphazard manner in which the Ban came in to force overnight, I would say it's definitely the latter. If they care for health of the citizens, they wouldn't open up Mendis distilleries just to collect the excise. So much for caring of health. Very Happy Very Happy Very Happy

It is true that the government revenues have reduced due to pandemic. We all agree to that. Government doesn't need to hide behind lies. Accept it and tell people the truth for what they will support the government for another 3 years. If they keep on lying, they are dragging the country down with them. I wouldn't be surprised even if they opted for a IMF bailout despite repeating that they won't seek such assistance because government has never done what they say and never say what they done. Ego is a bad thing.

What did I say Very Happy Very Happy Very Happy
Even though ANC talked big saying they won't go to IMF, There they are!!! It's funny how they eat their own words Very Happy Very Happy Very Happy

https://www.sundaytimes.lk/210711/news/lanka-goes-to-imf-for-us-800m-449123.html

https://www.newsfirst.lk/2020/12/17/sl-does-not-require-imf-state-minister-ajith-nivard-cabraal/

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