Sri Lanka’s trade deficit widens substantially this year

Exports

May 26, 2017 (LBO) – Sri Lanka’s trade deficit widened substantially in the first two months of the year, while a moderation in tourist earnings and a modest growth in workers’ remittances resulted in a subdued external sector, the central bank said in a statement.

“The deficit in the trade balance widened substantially to US dollars 743 million in February 2017 compared to US dollars 548 million in February 2016,” the statement said.

“The cumulative trade deficit during the first two months of 2017 increased substantially to US dollars 1,677 million from US dollars 1,238 million recorded during the same period of 2016.”

Earnings from exports at US dollars 868 million in February 2017 fell 2.7 per cent from US dollars 892 million in February 2016, mainly due to lower industrial exports.

Export earnings from textiles and garments contracted by 14.5 per cent to US dollars 396 million in February 2017 reflecting a significant decline in garment exports to the EU and the USA. Food, beverages and tobacco and gems, diamonds and jewellery also contributed substantially to the lower earnings from industrial exports.

However, earnings from machinery and mechanical appliances, petroleum products and rubber products showed an improved performance.

Meanwhile, earnings from agricultural exports grew for the third consecutive month registering an increase of 12.5 per cent to US dollars 205 million in February 2017.

Earnings from tea exports increased by 12.8 per cent in value terms due to higher prices, in spite of a decline in the volume exported. Earnings from spices showed a significant growth of 25.7 per cent in February 2017 mainly due to the improved performance in cloves, nutmeg and mace, owing to significant increases in volume despite lower prices.

In addition, earnings from seafood exports increased by 27.3 per cent, year-on-year, in February 2017 mainly due to a 111.0 per cent growth observed in seafood exports to the EU. However, earnings from coconuts, minor agricultural products and vegetables exports declined in February 2017.

On a cumulative basis, export earnings during the first two months of 2017 at US dollars 1,733 million, contracted by 3.2 per cent, year-on-year.

“A considerable widening in the trade deficit was observed in February with a decline in exports amidst increased imports mainly due to higher imports of fuel and rice.”

“Earnings from tourism dipped with a marginal decline in tourist arrivals during the month, which could partly be attributed to the day time closure of the Bandaranayke International Airport (BIA) for resurfacing of the runway.”

The pressure on the external account has been eased somewhat in subsequent months by improved export performance; a reversal of capital outflows with investments in the stock exchange and inflows to the government securities market.

Expenditure on imports increased by 11.9 per cent, year-on-year, to US dollars 1,611 million in February 2017, continuing the double digit growth seen in imports for the fifth consecutive month. Higher expenditure incurred on intermediate goods contributed largely to this growth.

Expenditure on imports of intermediate goods increased in February 2017 by 25.3 per cent, year-on-year, to US dollars 907 million, led by fuel imports.

Import expenditure on fuel increased by more than two fold to US dollars 355 million driven by higher expenditure on refined petroleum imports, while import of crude oil and coal also increased, owing to the increased thermal power generation due to prevailing drought conditions in the country.

Higher international oil prices and depreciation of the rupee also contributed to the increase in import expenditure on fuel.

In addition, expenditure on imports of raw materials of iron and steel, and gold also contributed significantly to the high growth in intermediate goods imports. However, import of textiles and textile articles, declined by 17.1 per cent in February 2017 in line with the decline in textiles and garments exports.

The overall BOP is estimated to have recorded a deficit of US dollars 258.3 million during the year up to end February 2017, compared to a deficit of US dollars 534.0 million recorded up to end February 2016.