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Financial flows slow under new regime

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The Central Bank of Sri Lanka on Friday said inflows to the financial account had moderated in the month of February 2015 mainly due to the deceleration in investment activities with the reviewing of major infrastructure projects of the public sector. The current account of the Balance of Payments (BOP) is generally strengthened by cumulative foreign exchange inflows to the country in the form of earnings from exports, tourism and workers remittances. This together with inflows to the financial account by way of foreign direct investments, inflows to the Colombo Stock Exchange (CSE) and private sector have over the years, supported the BOP to record a higher surplus.

Releasing the External Sector Performance for February 2015, which was the first full month when the new regime was in charge, the Central Bank said that the overall Balance of Payments (BOP) during the first two months of 2015 is estimated to have recorded a deficit of US$ 692.1 million, compared to a surplus of US$ 809.9 million recorded during the corresponding period of 2014.
According to the Central Bank, while earnings from exports in February 2015 increased by 5.8%, year-on-year, to US$ 891 million, expenditure on imports increased by a higher 7.7%, year-on-year, to US$ 1.53 billion. Consequently, the overall trade deficit in the month widened by 10.4% to US $638 million compared YoY.

In February 2015, the Central Bank said earnings from tourism is estimated to have increased by a healthy 16.7% to US$263.5 million but workers’ remittances increased by a mere 1.9% to US$ 511.6 million. During the first two months of 2015, workers’ remittances amounted to US$ 1.03 billion, declining marginally by 2.1% compared YoY.

Meanwhile, inflows to the government, during the first two months of 2015 had contracted by a sharp 77.8% to US$ 353million compared to a cumulative inflow of US$1.6 billion recorded during the first two months of 2014.The bulk of the US$1.6 billion inflow, was however, mainly due to money raised through the US$1 billion sovereign bond issue in February 2014, statistics showed. Inflows to the government include capital and current transfers to the government, inflows from the sale of Treasury bills and Treasury bonds, International Sovereign Bonds and long-term loans of the government.

The Central Bank said Sri Lanka’s gross official reserves estimated to have increased to US$ 7.4 billion by 30 April 2015 mainly with the proceeds of US dollars 400 million from the currency swap agreement between Sri Lanka and India. Further, total foreign assets, which include gross official reserves and foreign assets of deposit taking corporations, amounted to US dollars 9.0 billion as at end February 2015, equivalent to 5.5 months of imports.

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