Oct 30, 2018 (LBO) – The Central Bank of Sri Lanka said the island’s external sector performance remained subdued in August 2018.
“During the month, the deficit in the trade account narrowed marginally compared to a year earlier as the rise in export income outpaced the growth in import expenditure,” it said.
Meanwhile, other inflows to the current account continued to be modest in August 2018 with a marginal increase in earnings from tourism and a decline in workers’ remittances.
On a net basis, the financial account of the Balance of Payments (BOP) recorded outflows during the month, due to withdrawals of foreign investments from both the government securities market and the Colombo Stock Exchange (CSE) and continued debt service payments.
These developments, alongside the broad based strengthening of the US dollar, continued to exert pressure on the exchange rate to depreciate, thus necessitating intervention by the Central Bank in the domestic foreign exchange
market to curtail undue excessive volatility in the exchange rate.
As at end August 2018, gross official reserves amounted to US dollars 8.6 billion.
In August 2018, export earnings increased at a faster pace than the growth in import expenditure narrowing the deficit in the trade account marginally, on a year-on-year basis.
Nevertheless, on a cumulative basis, the trade deficit expanded during the first eight months of 2018 in comparison to the corresponding period of 2017.
Surpassing US dollars 1 billion for the third consecutive month, earnings from merchandise exports increased by 3.7 per cent (year-on-year) to US dollars 1,037 million in August 2018.
This growth was mainly driven by higher performance in industrial exports while agricultural and mineral exports declined. Under industrial exports, earnings from textiles and garments increased in August 2018 reflecting increased demand from the USA and non-traditional markets such as India, Japan, Australia and Canada despite a decline in exports to the EU market.
Further, export earnings from rubber products rose during the month due to the better performance in all sub categories, particularly rubber tyres.
Expenditure on merchandise imports increased by 1.6 percent (year-on-year) to US dollars 1,887 million in August 2018 mainly due to the high expenditure incurred on fuel and vehicle imports.
Under intermediate goods, expenditure on fuel imports increased significantly during the month owing to higher import prices of crude oil and refined petroleum products despite a reduction in import volumes. In addition, import expenditure on textiles and textile articles, chemical products, plastic and articles thereof and mineral products increased considerably.
However, gold, base metals and wheat and maize declined during this period.
A moderate increase in tourist arrivals was recorded in August 2018 in comparison to the same period in 2017 with a growth of 4.9 per cent, on a year-on-year basis.
Consequently, total tourist arrivals in the first eight months amounted to 1,582,835 with a cumulative year-on-year growth of 12.5 per cent. This reflected tourist earnings of US dollars 2,935 million during the first eight months of the year.