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Sri Lanka’s trade deficit has contracted by 10.0 per cent, year-on-year, to US dollars 542 million in July 2016, thanks to the sharper reduction in imports relative to the decline in exports, recent statistics showed. According to the Central Bank, however, the cumulative trade deficit increased to US dollars 4,755 million in the first seven months of 2016 from US dollars 4,724 million in the corresponding period of 2015.

Extracts from the External Sector Performance for July 2016 released last week is reproduced below;

Exports
Continuing the year-on-year declining trend, which began from March 2015, earnings from exports declined by 4.4 per cent, year-on-year, to US dollars 891 million in July 2016 from US dollars 932 million in July 2015. The subdued performance in agricultural and industrial exports, owing to lower international commodity prices and lower domestic supply, mainly contributed to this decline.

Export earnings from tea dropped by 14.8 per cent, year-on-year, to US dollars 108 million in July 2016, due to lower demand, particularly from Russia and Middle-Eastern countries, although tea exports to Iran increased in comparison to July 2015.
On a cumulative basis, earnings from exports during the first seven months of 2016 contracted by 5.6 per cent, year-on-year, to US dollars 5,999 million mainly due to reductions in export earnings from transport equipment, petroleum products, tea and spices.

Imports
Expenditure on imports contracted by 6.6 per cent, year-on-year, to US dollars 1,433 million in July 2016 compared to US dollars 1,534 million in July 2015. A significant decline in expenditure on vehicle imports, followed by fuel and wheat imports, contributed largely to this reduction.

On a cumulative basis, expenditure on imports during the first seven months of 2016 contracted by 2.9 per cent to US dollars 10,754 million, mainly due to reductions recorded in fuel, vehicle and rice imports. During the first seven months of 2016, main import origins were China, India, Singapore, Japan and the UAE accounting for about 57 per cent of total imports.

Tourism earnings
Tourist arrivals at 209,351 recorded a growth of 19.1 per cent, year-on year, in July 2016. Accordingly, tourist arrivals during the first seven months of 2016 increased by 16.7 per cent to 1,173,618 in comparison to the corresponding period of 2015. The top five sources of tourist arrivals in July 2016 were China, India, UK, Germany and France, accounting for 49.8 per cent of the total during the month. Cumulative earnings from tourism1 increased to US dollars 1,945.2 million during the first seven months of 2016 compared to US dollars 1,667.1 million recorded during the same period in 2015.

Remittances
Workers’ remittances declined by 4.4 per cent, year-on-year, to US dollars 572.8 million in July 2016 from US dollars 599.3 million in July 2015. The decline in workers’ remittances can be mainly attributed to the prevailing economic stagnation in Middle Eastern countries and lower migration under the unskilled categories. However, the cumulative inflow from workers’ remittances increased by 3.8 per cent to US dollars 4,185.9 million during the first seven months of 2016 in comparison to the corresponding period of 2015.

Financial flows
Foreign investments at the CSE recorded a net inflow of US dollars 10.1 million in July 2016. However, the cumulative foreign investments in the CSE up to end July 2016 recorded a net outflow of US dollars 30.8 million, including net outflows to the secondary market amounting to US dollars 32.2 million and inflows to the primary market amounting to US dollars 1.4 million.

Securities market
Continuing the trend observed from the latter part of April 2016, the government securities market recorded a net inflow of US dollars 238.5 million in July 2016. However, cumulative foreign investments to the government securities market during the first seven months of 2016 recorded a net outflow of US dollars 133.3 million compared to a net outflow of US dollars 424.7 million during the corresponding period of 2015.

Balance of payments
During the first seven months of 2016, the overall BOP is estimated to have recorded a surplus of US dollars 356.0 million, compared to a deficit of US dollars 1,229.6 million recorded during the corresponding period of 2015.

Reserves
Sri Lanka’s gross official reserves increased to US dollars 6.5 billion by end July 2016 with the proceeds from the duel-tranche international sovereign bond issuance and the Syndicated Loan facility. The gross official reserves were equivalent to 4.2 months of imports, while total foreign assets at US dollars 8.9 billion were equivalent to 5.7 months of imports.

Exchange rate
The rupee recorded a depreciation of 1.9 per cent against the US dollar during the period from end 2015 to 14 October 2016. Reflecting cross currency movements, the rupee also depreciated against the euro by 3.0 per cent, the Japanese yen by 15.5 per cent, the Canadian dollar by 6.7 per cent, the Australian dollar by 5.8 per cent and the Indian rupee by 1.4 per cent during this period while appreciating against the pound sterling by 18.8 per cent.

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