Sri Lanka’s trade deficit in the month of January 2016 has contracted by 9.1 per cent, on a year-on-year basis, to US$ 695 million compared to US$ 765 million in January 2015, the Central Bank of Sri Lanka announced on Friday.
In January 2016, earnings from exports declined for the eleventh consecutive month by 2.5% to US$ 894 million while expenditure on imports, declined by a faster pace of 5.5%, year-on-year, to US$ 1.59 billion.
Statistics relating to the External Sector Performance released by the Central Bank of Sri Lanka is reproduced below;
External Sector Performance – January 2016
Sri Lanka’s external sector showed a modest performance during the month of January 2016. The trade deficit narrowed in January 2016 while foreign currency inflows in the form of tourist earnings recorded a relatively high growth and inflows from workers’ remittances also improved. The trade deficit narrowed on account of the higher decline in import expenditure mainly due to the drop in fuel, vehicle and rice imports, compared to the decline in earnings from exports during January 2016. However, the government securities market and the Colombo Stock Exchange recorded net outflows during the period.
Earnings from exports declined for the eleventh consecutive month in January 2016 recording a 2.5 per cent decline, year-on-year, to US dollars 894 million largely reflecting continuous decline recorded in commodity prices in the international market. Exports of petroleum products, gems, diamonds and jewellery, tea, and spices mainly contributed for this decline. Earnings from petroleum products in January 2016 declined by 53.3 per cent, year-on-year, reflecting a drop in both bunkering quantity and average price level. Exports of gems, diamonds and jewellery showed a significant decline of 33.4 per cent owing to declines recorded in exports of gem and diamond sub categories. The continuous weakening of demand for Ceylon tea from the major tea export destinations mainly Russia, Turkey and some Middle-Eastern countries, caused export earnings from tea to decline by 12.4 per cent in January 2016, year-on-year. Both the export volume and the average price of tea were lower than previous year.
Earnings from spices exports, which improved significantly during the year 2015, declined by 26.8 per cent in January 2016, year-on-year, reflecting declines in pepper, cloves and nutmeg exports despite the significant growth recorded in exports of cinnamon. Further, machinery and mechanical appliances, leather, travel goods and footwear and minor agricultural products also contributed to the drop in earnings of exports in January 2016. However, export earnings from textiles and garments, which contributed nearly 52 per cent to the total exports, improved by 13.3 per cent year-on-year in January 2016, reversing the declining trend prevailed in last quarter of 2015.
Garment exports to both traditional and non-traditional markets improved during the month. In addition, earnings from rubber products increased by 11.1 per cent, year-on-year, during the month mainly due to the growth in earnings from exports of rubber tires. In addition, earnings from coconut showed a significant improvement while earnings from the export of food, beverages and tobacco, animal fodder, and plastics and articles thereof showed a marginal improvement in January 2016.
In January 2016, main export destinations were the USA, UK, Germany, India and Italy, accounting for about 53 per cent of the total exports.
Continuing the declining trend prevailed during the last six months, expenditure on imports contracted by 5.5 per cent, year-on-year, to US dollars 1,589 million in January 2016. Significant decline recorded in expenditure on fuel imports followed by rice imports and vehicle imports for personal use and investment purposes contributed mainly to this reduction in imports. Import expenditure on fuel declined significantly by 39.6 per cent, year-on-year, to US dollars 175 million, due to the drop in average import prices of all categories of fuel together with lower import volume of refined petroleum and coal.
Continuing the declining trend prevailed during the previous year, international oil prices dropped further in January 2016, which resulted in decline of the average import price of crude oil to US dollars 31.87 per barrel compared to US dollars 55.47 per barrel recorded in January 2015. Meanwhile, expenditure on rice imports declined by 98.0 per cent to US dollars 1.1 million in January 2016 for the ninth consecutive month in comparison to US dollars 55 million in the corresponding month of 2015 due to bumper paddy harvest recorded in 2015.
Reflecting the impact of increase in taxes for motor vehicles by the budget for 2016 expenditure on importation of vehicles for personal use and investment purposes which categorised under consumer goods and investment goods declined significantly by 12.6 per cent and 42.3 per cent, respectively, in January 2016. Due to this tax increase, importation of personal motor vehicles, such as motor cars and motor cycles and road vehicles such as lorries, trishaws and buses which import specially for investment purposes declined during the month. In addition, expenditure on base metals and sugar and confectionery imports also contributed towards reducing the import expenditure in January 2016. However, in line with the growth recorded in the export earnings from textiles and garments, import expenditure on textile and textile articles increased by 25.4 per cent, in January 2016 owing to the 34.0 per cent increase recorded in fabrics imports. Also reflecting the increases recorded in all sub categories, except iron and steel and insulated wires and cables, expenditure on building materials increased by 23.7 per cent, on a year-on-year in January 2016.
Although the 14.6 per cent decline recorded in average import prices, expenditure on wheat and maize imports increased significantly by 102.0 per cent, year-on-year, due to the substantial 136.6 per cent growth recorded in import volumes. Further, import expenditure on diamonds and precious stones and metals, machinery and equipment, and vegetables also increased during the month.
In January 2016, main import origins were China, India, Japan, UAE and South Korea, accounting for about 54 per cent of the total imports.
The deficit in the trade account contracted in January 2016, by 9.1 per cent, on a year-on-year basis, to US dollars 695 million compared to US dollars 765 million in January 2015.
Earnings from Tourism
Tourist arrivals at 197,697 continued to expand, recording a growth of 19.4 per cent in February 2016. Meanwhile, tourist arrivals grew by 21.8 per cent during the first two months of 2016 totalling 391,977. China and India continued to be the main source markets for tourism with arrivals from these two countries growing by 48.8 per cent and 29.1 per cent, respectively during the first two months of 2016. Cumulative earnings from tourism grew by 21.8 per cent, year-on-year, to US dollars 649.7 million during the period.1
Receipt of workers’ remittances grew by 7.6 per cent to US dollars 563.4 million in January 2016 compared to US dollars 523.5 million in January 2015. The expansion in workers’ remittances is partially attributable to the base effect with the decline in earnings during January 2015. However, prevailing low oil prices and the resultant stagnation of income levels in the Middle Eastern countries could have impacted adversely on inflows from workers’ remittances.
The government securities market continued to experience a net outflow in terms of foreign investments with a cumulative outflow of US dollars 253.6 million during the first two months of 2016 compared to an outflow of US dollars 12.8 million in the corresponding period of 2015. The Colombo Stock Exchange (CSE) recorded a net outflow of US dollars 10.1 million up to end February 2016, which comprised net outflows of US dollars 10.3 million of foreign investment from the secondary market and inflows of US dollars 0.2 million to the primary market. Long term loans to the Government registered a net outflow of US dollars 68.3 million in January 2016, compared to the net inflow of US dollars 26.7 million recorded in January 2015.
Overall Balance of Payments (BOP) Position
In January 2016, the BOP is estimated to have recorded a deficit of US dollars 619.3 million, compared to the deficit of US dollars 696.5 million in the corresponding period of 2015.
International Reserves and Exchange Rate Movements
Sri Lanka’s gross official reserves as at end January 2016 amounted to US dollars 6.3 billion, equivalent to 4.0 months of imports while total foreign assets amounted to US dollars 8.4 billion, equivalent to 5.4 months of imports.
During 2016 up to 05 May, the rupee depreciated by 1.1 per cent against the US dollar. Based on cross currency exchange rate movements, the Sri Lankan rupee appreciated against the pound sterling by 0.9 per cent, while depreciating against the Australian dollar by 3.7 per cent, the Japanese yen by 12.1 per cent, the euro by 6.0 per cent and the Indian rupee by 0.9 per cent during this period.