In 2012, earnings from tourism and remittances reached a record high of US $ 1,039 million and US $ 5,985.3 million respectively reducing the current account deficit of the Balance of Payment (BoP) substantially, according to the data released by the Central Bank..
As a result, the Central Bank expects to reduce the current account deficit of the BoP to US $ 3.3 billion or 5.5 percent of GDP in 2012 from 7.8 percent in 2011. Further the BoP is also expected to turn into a US $ 100 million surplus improving from the deficit of US $ 1,061 million in 2011.
Since the end of the armed conflict in May 2009, the tourism earnings have been continuously improving and in 2011 it peaked US $ 830.3 million. However the increasing tourism arrivals which peaked at 1 million in 2012 fail to boost the bottom lines of the star class hotels in the country. This was amply demonstrated by the recently released Q3 results of John Keells Hotels’ bottom line denting by as much as 22 percent.
This was further proved by the latest research carried out by Capital Alliance on the country’s hospitality sector which is losing appeal in the minds of the tourists due to failure to deliver value for money.
Meanwhile the workers’ remittances which have so far come to the rescue of the current account of the BoP increased the earnings from US $ 5,144.8 million in 2011 to little less than US $ 6,000 million.
It is unlikely that the government will take any measures to disturb this encouraging trend despite recent calls from various quarters to ban the practice sending of Sri Lankan women to Middle Eastern countries as house maids.
This is particularly true at a time when the Central Bank strives to increase the remittances share of the GDP to at least 14 to 15 percent from the existing 10 percent level within the next 4 years. According Ajith Nivard Cabraal, the Governor of the Central Bank, the high level of inflows on account of emerging services such as export of software and information technology enabled services also helped to buttress the current account substantially. The ICT/BPO industry which is among the top five export revenue earners accounts for over US $ 600 million annually.
Meanwhile the capital & the financial account of the BoP also saw substantial foreign currency inflows. Foreign investments at the Colombo Stock Exchange (Portfolio investments) peaked US $ 305 million against the net outflow of US $ 171 million in 2011.
There has been a significant increase in foreign investments in government securities, with net inflows to treasury bills and treasury bonds during 2012 amounting to US $ 843 million compared to the net inflow of US $ 233 million in 2011.
Further, long-term loans obtained by the government during 2012 amounted to US $ 2,869 million, while long-term borrowings by commercial banks during 2012 amounted to US $ 973 million.
Meanwhile the Foreign Direct Investments which were materialized for the full year will not be available until March, for the first nine months the figure stood at US $ 615 million including foreign loans obtained by Board Of Investment (BOI) companies.
Nevertheless Mirror Business exclusively reported in January, the total for the year was US $ 1.2 billion quoting the ex-chief at the BOI.
Gross official reserves amounted to US $ 6,877 million by end 2012, while total international reserves which include gross official reserves and foreign assets of commercial banks, amounted to US $ 8,358 million by end 2012. In terms of months of imports, gross official reserves were equivalent to 4.3 months of imports by end 2012, while total reserves were equivalent to 5.3 months of imports.