- August trade deficit reaches new high
- Oil bill up 73% YoY to US $ 312.5mn
- Oil bill in first 8 months up 43.4% YoY to US $ 2.2bn
- August export earnings up 15% YoY to US $ 1.06bn
- Import expenditure up 12.6% YoY to US $ 1.86bn
- Trade gap in first 8 months widens to US $ 6.2bn
The fast rising oil bill hindered an otherwise modest trade performance by Sri Lanka this August as the country’s exports showed signs of gaining momentum after the restoration of the Generalized System of Preferences (GSP) Plus concessionary tariff scheme this June. But the trade deficit reached a new high.
Sri Lanka’s exports have been languishing for months until March this year. The latest data for August released by the Central Bank this week showed earnings briefly crossing a billion-dollar mark for the second month in a row, registering a growth of 15.5 percent year-on-year (YoY).
The import bill also expanded in August by 12.6 percent YoY to US $ 1.86 billion, recording the second highest so far for this year, amid global crude prices gaining the lustre they had lost from mid-2014.
Sri Lanka is a country dependant on imports even for staples such as rice but the free market advocates have been calling for further liberalization of the country’s trade account.
They argue, for exports to pick up, there shouldn’t be any restrictions on imports. Sri Lanka is among the first nations to liberalize its economy in the Asian region in 1977, just to see the imports from all corners of the world flooding into all sectors of the economy, effectively paralysing even the sectors the country had a comparative advantage.
The nationalist economists— though they are principally not against free trade— argue that Sri Lanka should have opened herself gradually to selective sectors while feeding the national industries to flourish.
Instead, Sri Lanka bypassed the industrialization phase to become a service economy and is now struggling playing the catching up game.
As a result, the trade gap— the balance between the imports and exports of trade in goods— expanded to US $ 856.3 million in August from US $ 782.8 million a year ago.
Meanwhile, the cumulative trade gap for the eight months widened to US $ 6.2 billion from US $ 5.5 billion recorded for the same period, last year, as the export earnings of US $ 7.4 billion lagged behind the import bill of US $ 13.6 billion, which grew by 9.6 percent YoY.
Moody’s Investors Service this week said Sri Lanka’s current account deficit in the balance of payment could expand to 3.0 percent of gross domestic product this year, from 2.4 percent in 2016, forcing the country into more borrowings.
As Mirror Business exclusively reported on Monday, apparel offers a sweet spot in Sri Lanka’s industrial export basket, as the sector has started receiving a stimulus from GSP Plus, which was regained recently from the European Union (EU).
Apparel, Sri Lanka’s top commodity export, earned US $ 433.2 million in August, registering a 10.1 percent growth YoY and exports to the EU jumped 14 percent YoY to US $ 192 million.
But the cumulative earnings from apparel exports for the first eight months were 1.5 percent less YoY at US $ 3.3 billion.
Earlier this week, Sri Lanka Apparel Exporters’ Association President Felix Fernando told Mirror Business that the order books are filling up and the sector is hopeful of a 20 percent growth during the first year of regaining GSP Plus.
Meanwhile, the agricultural exports gained 22.8 percent YoY to US $ 255.4 million in August mainly due to the strong tea prices albeit the volumes remaining weak.
Tea exports during August rose 20.6 percent YoY to US $ 131.3 million while the cumulative earnings were briefly above a billion dollars, which is a 20.1 percent YoY increase.
Further, the exports of spices, coconut and seafood were up 40.5 percent, 4.5 percent and 38.6 percent, respectively.
Meanwhile, in the import side of the trade account, the rising oil prices despite the lower volumes imported, signalled the troubling trend in containing the trade gap going forward.
The fuel imports in August spiked 73 percent YoY to US $ 312.5 million while the eight months cumulative oil bill was US $ 2.2 billion, up 43.4 percent YoY.
“This was largely driven by the significant increase in refined petroleum imports by 110.9 percent to US $ 233 million. In addition, reflecting the impact of high crude oil prices in the international market, import expenditure on crude oil increased by 12.2 percent despite a reduction in volume.
Accordingly, the average import price of crude oil was recorded at US $ 53.07 per barrel in August 2017 compared to US $ 46.71 per barrel recorded in August 2016,” the Central Bank said in a statement.
The consumer goods imports remained unchanged in August at US $ 393.8 million but the cumulative imports showed a modest increase of 4.5 percent YoY to US $ 2.9 billion.
The vehicle imports were down by 2.0 percent YoY to US $ 72.6 million although there isn’t a tangible reduction in the number of vehicles imported.
During the first eight months of this year, the Sri Lanka spent little over a billion dollars for vehicle imports, down 7.7 percent YoY.
The investment goods imports showed an increase of 2.1 percent YoY to US $ 438.7 million, reflecting higher imports of machinery and equipment and building materials.