Sri Lanka’s trade deficit widened by a staggering 49.7 percent year-on-year (YoY) to US $ 703 million in the month of May 2015, amid a significant increase in imports led by vehicle imports, the Central Bank said last week. On a cumulative basis, trade deficit during the first five months of 2015 increased by 10.2 percent to US $ 3,397 million.
Import expenditure on personal motor vehicles, which falls under consumer goods imports, rose 87.1 percent YoY to US $ 93 million.
Earnings from exports further moderated in May 2015 to US dollars 883 million, recording a marginal decline of 0.1 percent, year-on-year. Despite the significant improvement recorded in exports of textile and garments, lower performance in tea, seafood and gem, diamond and jewelry exports contributed to this decline. Tea exports, which were severely affected by the lower demand from Russia and the Middle East, declined for the eight consecutive months in May 2015, recording a drop of 12.1 percent compared to the corresponding month of 2014.
Tea exports to Russia and the Middle East declined by 19.2 percent and 9.7 percent, respectively, during May 2015 compared to the corresponding month of 2014. Seafood exports which dropped continuously from October 2014, recorded a further decline of 39.3 percent in May 2015, compared to the corresponding month in 2014. This reduction was mainly due to the significant decline of 74.8 percent in seafood exports to the EU market, the main seafood market of Sri Lanka as a result of the ban on seafood imports from Sri Lanka to the EU market with effect from 13 January 2015.
Export earnings from gems, diamonds and jewelry, declined by 29.8 percent year-on-year to US dollars 25 million. Petroleum products and, machinery and mechanical appliances also contributed for the drop in exports during the month. Export earnings from textiles and garments, which account for about 45 percent of total exports and declined in March and April 2015, increased by 7.6 percent during May 2015, reflecting an increase in exports to the USA and non-traditional markets such as Canada, China, UAE and Australia.
However, textiles and garments exports to the EU market declined by 11.8 percent in May 2015, continuing the declining trend observed from March 2015. On a cumulative basis, export earnings during the first five months of 2015 increased marginally by 0.2 percent, year-on-year, to US dollars 4,471 million. The leading markets for merchandise exports of Sri Lanka during the first five months of 2015 were the USA, UK, India, Germany and China accounting for about 51 percent of the total exports.
Total import expenditure in May 2015 increased for the second consecutive month recording a significant increase of 17.2 percent, year-on-year, to US dollars 1,585 million led by vehicle imports, which include personal motor vehicles categorized under consumer goods and commercial vehicles categorized under investment goods. Imports of motor vehicles for personal use, increased by 87.1 percent, year-on-year, to US dollars 93 million, while transport equipment increased by 117.2 percent, year-on-year, to US dollars 72 million mainly due to the increase in importation of auto trishaws.
In addition, import of machinery and equipment, and textiles and textile articles also contributed significantly to the growth in imports. Import expenditure on machinery and equipment increased by 21.8 percent during the month, mainly due to higher imports of machinery and equipment parts, printing machinery and medical and laboratory equipment. Import expenditure on textiles and textile articles increased by 16.3 percent, year-on-year, mainly due to the increase in fabrics such as knitted or crocheted fabric, woven fabric of cotton and tyre cord fabric. Meanwhile, import expenditure on fuel declined by 7.8 percent, year-on-year to US dollars 264 million in May 2015, reflecting 14.1 percent reduction in refined petroleum bill as a result of a 30.1 percent decline in import prices.
However, expenditure on crude oil imports increased by 11 percent due to a substantial increase in import volume, despite the decline in the import price. Meanwhile, import expenditure on fertilizer and dairy products declined by 20.9 percent and 40.7 percent, respectively, while rice imports which recorded a significant growth since April 2014, also declined by 23.8 percent in May due to the increase of Special Commodity Levy imposed on rice to Rs.40 per kg from Rs.20 per kg with effect from 26.03.2015.
On a cumulative basis, expenditure on imports during the first five months of 2015 increased by 4.3 per cent, year-on-year, to US dollars 7,868 million mainly led by consumer goods imports followed by investment goods imports. During the period from January to May 2015, the main import origins were India, China, Japan, UAE and Singapore accounting for about 60 percent of the total imports.
The deficit in the trade account in May 2015 widened substantially by 49.7 percent to US dollars 703 million in comparison to US dollars 470 million in May 2014, the lowest monthly value recorded during the year 2014. On a cumulative basis, trade deficit during the first five months of 2015 increased by 10.2 percent to US dollars 3,397 million.
Earnings from tourism
Tourist arrivals increased by 26.1 percent, year-on-year, to 113,529 in May 2015 from 90,046 in May 2014. Earnings from tourism are estimated to have increased by 26.1 percent to US dollars 180.7 million in May 2015, compared to US dollars 143.3 million in May 2014. The top five sources of tourist arrivals in May 2015 were India, China, UK, Germany and France accounting for about 49.8 percent of tourist arrivals during the month.
Tourist arrivals recorded a growth of 11.9 percent, year-on-year, in June 2015, with 115,467 tourists arriving during the month. Consequently, the cumulative tourist arrivals during the first six months of 2015 increased by 14.1 percent to 830,051 compared to the corresponding period of 2014. The cumulative earnings from tourism increased to US dollars 1,321.4 million during the first six months of 2015 compared to US dollars 1,157.9 million recorded during the same period in 2014.
In May 2015, workers’ remittances declined marginally by 3.5 percent, year-on-year, to US dollars 537.7 million from US dollars 557.5 million in May 2014. Meanwhile, on a cumulative basis, inflows from workers’ remittances increased marginally by 1.0 percent to US dollars 2,803.1 million during the first five months of 2015 in comparison to the corresponding period of 2014. However, workers’ remittances are expected to gather momentum during the second half of the year.
Foreign investments in the government securities market recorded a net outflow of US dollars 237.3 million during the first six months of 2015 compared to a net inflow of US dollars 196.5 million during the corresponding period of 2014. During the first five months of the year, foreign investments in the Colombo Stock Exchange (CSE) recorded a net inflow of US dollars 58.2 million, including net inflows to the secondary market amounting to US dollars 33.5 million and inflows to the primary market amounting to US dollars 24.7 million. Meanwhile, net cumulative inflows to the CSE by 21 July 2015 amounted to US dollars 33.1 million. During the first five months of 2015, long-term loans obtained by the Government amounted to US dollars 372.0 million compared to US dollars 848.1 million received in the corresponding period of 2014.
Overall BOP position
The overall BOP is estimated to have recorded a deficit of US dollars 1,307.8 million during the first five months of 2015, compared to a surplus of US dollars 1,665.1 million recorded during the corresponding period of 2014.
Sri Lanka’s gross official reserves as at end May 2015 stood at US dollars 6.8 billion, equivalent to 4.2 months of imports, while total foreign assets amounted to US dollars 8.7 billion, equivalent to 5.3 months of imports. However, the gross official reserves are estimated to have increased to US dollars 7.5 billion as at end June 2015, with the receipt of the proceeds from the latest international sovereign bond and Sri Lanka Development Bond issuances and other currency inflows.
Exchange rate movement
During the year, up to 21 July 2015, the rupee has depreciated by 2.1 percent against the US dollar. However, based on cross currency exchange rate movements, the Sri Lankan rupee appreciated against the euro by 10.0 percent, the Australian dollar by 9.2 percent and the Japanese yen by 2.0 percent, while depreciating against the pound sterling by 2.0 percent and the Indian rupee by 1.6 percent during this period.