Sri Lanka’s trade deficit in the month of January 2016 has contracted by 9.1%, 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 last week. The fall in the trade deficit was due to the decline in earnings from exports for the eleventh consecutive month by 2.5% to US$ 894 million while expenditure on imports also declined at a faster pace of 5.5%, year-on-year, to US$ 1.59 billion.

Below are highlights of the External Sector Performance released by the Central Bank;

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.

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.

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 January 2016, main export destinations were the USA, UK, Germany, India and Italy, accounting for about 53 per cent of the total exports.

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.

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.

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.

In January 2016, main import origins were China, India, Japan, the UAE and South Korea, accounting for about 54 per cent of the total imports.

Tourism earnings
Cumulative earnings from tourism during the first two months of 2016 grew by 21.8 per cent, year-on-year, to US dollars 649.7 million during the period.

Workers’ remittances
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.

Financial flows
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
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.

BOP position
In January 2016, the Balance of Payments (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.

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.

Exchange rate
During 2016 up to 5 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.

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