Imports to Sri Lanka fell sharply while exports recorded the highest ever monthly figure in March, as the effects of tight monetary and exchange policies bode well to temporarily contain the trade gap from expanding.
Sri Lanka’s import expenditure fell 12.6 percent in March to US $ 1.73 billion year-on-year (YoY) while the exports rose 2.6 percent YoY to Rs.1.14 billion, narrowing the trade deficit in the month to US $ 592 million from US $ 871 million YoY.
Sri Lanka tightened its monetary policy multiple times and brought in targeted import controls on non-essential consumer goods in the third quarter of last year.
The policy overtures made to defend the free fall of the rupee last year, which fell by almost 19 percent against the US dollar, resulted in curbing private sector credit growth in the first quarter of this year, pulling down the imports.
However, the Central Bank has already indicated its strong desire to relax the monetary policy on the premise that the import pressure to remain subdued and the inflation brought under check.
The next monetary policy review is scheduled for this Friday.
Meanwhile, import controls on certain non-essential consumer goods were also lifted by budget 2019 in March.
All was done with the desire to revitalize the economy, which had long been plagued by a mix of wrong economics and bad politics, which were further exacerbated by the attack on April 21 by radical Islamic terrorists.
Meanwhile, during the first quarter of this year, imports contracted by 19.3 percent YoY to US $ 4.82 billion, while exports rose by 5.6 percent YoY to US $ 3.16 billion narrowing much of the trade gap to US $ 1.66 billion from US $ 2.98 billion YoY.
The export growth has been driven by industrial and mineral exports while agricultural exports declined in March, the data released by the Central Bank showed.
Textile and garment exports rose by 9.4 percent YoY to US $ 533 million in March, bringing the cumulative exports during the three months to US $ 1.47 billion, up 11 percent YoY.
Earnings from tea exports in March, the biggest agricultural export commodity, fell 9.1 percent YoY to US $ 126 million, pulling down the three-month cumulative earnings by 5.8 percent YoY to US $ 347 million.
Meanwhile, the contraction in imports mainly stemmed from the intermediate and consumer goods sectors as a result of the aforementioned restrictions.
Both consumer goods and non-consumer goods fell by 26 percent and 29 percent YoY to US $ 352 million and US $ 214 million respectively, while the three months’ contraction was 33 percent and 31 percent YoY to US $ 912 million and US $ 577 million respectively.
Personal vehicle imports plunged 52 percent YoY to US $ 72 million in March while such imports fell 53 percent YoY to US $ 170 million during the first quarter.
Import expenditure on fuel was little changed at US $ 408 million in March and for the three months the bill was a little over US $ 1.0 billion. The biggest impact came from the precious metal imports including gold, which came down to a mere US $ 14.7 million from US $ 150 million a year ago.
For the three months, such imports came down to US $ 48 million from US $ 375 million YoY due to the imposition of customs duty in April 2018 to stop gold smuggling through Sri Lanka to South India.
Imports to Sri Lanka is largely expected to stay muted during the remainder of the year despite the much anticipated policy relaxation by the authorities, while exports could further gather steam as manufacturers from different sectors seek incentives to export more as domestic demand remains dull after the Easter attacks.
But any positive movement in the trade account is expected to be off-set or outweighed by the muted foreign investments and tourism inflows following the terrorist attack.