The determinants of the balance of payments imbalance of Sri Lanka

Abstract

This research attempts to identify the highly influential determinants for Sri Lanka's Balance of Payments (BOP) imbalance. The study was based on time serious secondary data for the time spanning from 1990 to 2017. The operational methodology adopted is the multiple regression model on variables such as Imbalance of the Previous Year (β 1 BOP t-1), Money Supply (MS t), Economic Growth Rate (EGR t), Inflation Rate (IR t), Reserve Assets (RA t), Exports (EX t), Imports (IM t) and Exchange Rate (EXR t). The findings of the study revealed that money supply and exchange rate are the highest negatively influential determinants while reserve assets and export income highly positively influence on balance of payments imbalance. Research recommends uplifting the export income while declining the exchange rate to prevent from upcoming BOP deficit. Research suggests future researchers to analyse the impact of qualitative variables on BOP imbalance.