Sri Lanka’s exports fell 2.5 per cent in January but industrial exports rose led by apparel and rubber, while imports continued to fall. Apparel exports rose 13 per cent and rubber exports rose 11 per cent. Imports were down 5.5 per cent with vehicle imports down 13 per cent.
The trade gap fell 9.1 per cent in January 2016 from a year earlier. Sri Lanka has a trade gap because the country has foreign exchange earnings beyond merchandise good exports including remittances and tourism. Imports are also driven by net foreign borrowings.
In 2015, exports fell 5.6 per cent and imports fell 2.5 per cent with remittances and inflows falling. But the country experienced a balance of payments deficit and a currency crisis as money was printed to finance the deficit and to enforce a rate cut as credit recovered. The printing of money prevented imports shrinking in line with the weakening net capital inflows.
In Sri Lanka mercantilism is ingrained and most people believe that currency troubles are not a result of monetary instability but due to the trade deficit, particularly oil or car imports. This year oil could not be blamed as oil prices collapsed. Mercantilist beliefs in Sri Lanka blame diesel in particular for inflation. Due to the prevailing mercantilism the central bank has been able to print money, generate inflation or currency collapses and get away with it, though it is getting increasingly harder.