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Sri Lanka’s expenditure on imports has declined marginally from US$ 19,417 million in 2014 to US$ 18,935 million in 2015. This is, however, considerably high in comparison to exports. Despite a significant fall in petroleum imports, imports rose due to huge imports of consumer and investment goods, especially Seafood, Vehicles and Transport equipment. Inadequacy of export earnings and the meagre decline in import expenditure led inevitably to widening of the trade deficit in 2015 by 1.7 per cent from that of 2014.
The main items that accounted for the fall in import expenditure by 2.5 per cent in 2015 are the reduced expenditure in Fuel, Wheat and Maize and Textile and Textile articles. Due to the fall in international oil prices, the fuel import bill decreased by 41 per cent from US$ 4597 in 2014 to US$ 2700. This is a sharp contrast to the continuous negative impact caused by oil imports for the past few years. Lower thermal power generation due to plenty of rainfall last year also contributed to bring down the import bill.

Though the fall in international oil prices affected favourably on Sri Lanka’s import bill, it also reduced the global demand for our exports in major export destinations and oil-export countries. As there is less hope to increase exports due to the current global economic conditions, bringing down import expenditure is imperative for Sri Lanka

Consumer goods imports increased from US$ 3853 million in 2014 to US$ 4714 million in 2015. The highest contributors to this increase are Seafood, Vehicles and Vegetables which accounted for approximately 53 per cent, 52 per cent and 40 per cent respectively. Moreover, beverages accounted for a 26 per cent increase and medical & pharmaceuticals accounted for 21 per cent increase despite a fall in cereals and milling industrial products. Overall, the import expenditure increase in Consumer goods in 2015 was 22 per cent higher than in the previous year.

economicsReduced expenditure on Intermediate goods imports by 15 per cent between 2014 and 2015 was the only factor which led to an overall decline in the import bill. As pointed out earlier, the Intermediate imports of Wheat and Maize and Textile and Textile Articles reduced by 12 per cent and 1 per cent respectively in 2015, along with the fuel bill. However, there are increases in import expenditure on Chemical products, Fertilizers and Rubber articles, Mineral products and unmanufactured tobacco.

Investment goods category increased by 10 per cent from US$ 4152 million in 2014 to US$ 4567 million in 2015. Expenditure on Transport equipment increased by 32 per cent, while all other sub-categories like Machinery and equipment and Building materials, too recorded increases.

Containment of the trade deficit is essential to maintain favourable external finances that are in a serious situation at present. As brought out in my last article, diversifying Sri Lanka’s export base is crucial. Though the fall in international oil prices affected favourably on Sri Lanka’s import bill, it also reduced the global demand for our exports in major export destinations and oil-export countries.As there is less hope to increase exports due to the current global economic conditions, bringing down import expenditure is imperative for Sri Lanka.

The present large trade deficit is mainly due to government mismanaging monetary, fiscal and exchange rate policies. The trade deficit being the prominent factor for Sri Lanka’s weak Balance of Payments position, a correct mix of monetary and fiscal policies at right times are obligatory.Meantime, there is hope that there is a close watch on imports as recent government initiatives are in the right direction. The present policy of restricting credit growth with high interest rates would repress aggregate demand, thus reducing imports. High import tariffs would also restrain imports and consumers will shift to
locally produced goods. Depreciation of the rupee will make exports more competitive and imports less attractive.

Amidst the above policies implemented, government should closely observe the import bill of the country. While it is necessary to have a precise and consistent approach with regard to monetary and fiscal policies, reducing the overall aggregate demand should becomplemented by curtailing selective imports that could be locally produced.

Source: CBSL
Source: CBSL