Recording a contraction for the 17th month in a row, Sri Lanka’s exports fell by 4.4 percent year-on-year (YoY) in July to US $ 891.2 million extending the first seven months’ contraction to 5.6 percent YoY to US $ 6.0 billion, the latest data released by the Central Bank showed.
The imports also dropped by 6.6 percent YoY to US $ 1.4 billion in July and for the seven months the country imported goods worth of US $ 10.8 billion, a contraction of 2.9 percent from the same period
As a result, the trade deficit in July contracted by 10 percent YoY to US $ 542 million but the seven-month deficit edged up by 0.7 percent YoY to US $ 4.8 billion. The exports have been on the decline as the global commodity prices slumped impacting the agricultural and industrial exports but the “lower domestic supply mainly contributed to this decline,” the statement from the Central Bank said.
The earnings from tea – Sri Lanka’s main agricultural export commodity – dropped by 14.8 percent YoY in July to US $ 107.8 million “due to lower demand, particularly from Russia and the Middle Eastern countries, although tea exports to Iran increased in comparison to July 2015”. The first seven-month export earnings from tea narrowed 10.3 percent YoY to US $ 726 million.
The exports of spices dropped sharply by 31.8 percent YoY to US $ 33.1 million in July, mainly due to the poor performance of pepper as a result of the low domestic supply.
However, cinnamon, nutmeg and mace showed a considerable growth on a YoY basis, the Central Bank added. The seafood exports in July dropped by 5.8 percent YoY to US $ 14.2 million but the statement said such exports to the European Union (EU) had risen by 19.9 percent YoY as the ban on fish exports to the EU was removed in end-June.
Meanwhile, the earnings from the textile and garment exports – the largest commodity export – which accounts for 48 percent of the total export basket, rose by 3.0 percent YoY to US $ 425.6 million, while the seven-month exports rose by 4.3 percent YoY to US $ 2.9 billion. The continuation of the trend could bring the cumulative earnings from textiles above the US $ 5 billion mark by year end.
The Central Bank attributed this growth to higher garment exports to the EU and non-traditional markets such as Canada, China, Australia and the UAE. The impact of Brexit is yet to be seen as a larger share of Lankan garments is sold to Britain. The earnings from petroleum products decreased by 24.7 percent YoY in July, owing to the combined effect of lower bunkering quantities and average bunkering prices.
Meanwhile, the imports declined largely due to the significant decline in expenditure on vehicles – both consumption and investment related. The consumption vehicle imports declined by 63.7 percent YoY to US $ 53.6 million in July, while during the seven months, the country has spent US $ 472.9 million on vehicles, a 36.5 percent decrease from a year ago. The transport equipment categorized under investment goods also saw a decline of 29.4 percent YoY to US $ 57 million, while the decline for the first seven months was 41.6 percent YoY to US $ 348 million.
“Importation of motor cars, hybrid electric vehicles, motorcycles, buses, agricultural tractors and auto-trishaws declined significantly during the month,” the Central Bank said. The import expenditure was further supported by the lower fuel imports, which dropped by 18.6 percent YoY to US $ 142 million in July. During the first seven months, the country spent US $ 1.3 billion on fuel, a decrease of 20 percent from the same period a year ago. Meanwhile, the wheat and maize imports declined sharply by 67 percent YoY in July to US $ 8.3 million mainly due to the reduction in volumes and prices of wheat.
However, the imports of machinery and equipment and building materials rose in July by 25.4 percent and 14.4 percent, respectively due to the pick up in construction activities in the country. Meanwhile, increasing imports of gold during the month has also been observed due to the high quantum of gold imported and the non-importation of gold during the corresponding month in 2015. Open trade and non-aligned foreign exchange policy has been key economic pillars of the coalition regime, which came into power last year, but the exports have gone downhill since then and the external sector has remained extremely fragile ever since. The country concluded the World Export Development Forum last week, which drew many international figures from across the world, but according to reports, less policy matters on trade, particularly on reviving exports, had come out.
Balance of payments turned a surplus
The balance of payments (BoP), which demonstrates the net result of the country’s all transactions with the world, has finally turned a positive US $ 356 million from a deficit of US $ 1.2 billion a year ago.
The BoP was largely cushioned by the current account of the external account, which records the tourism, remittances and other inflows in respect of the services and specifically the strong financial flows into the financial and capital account of the BoP.
Sri Lanka raised US $ 1.5 billion via dual tenure sovereign bonds, while the portfolio flows into the Colombo Stock Exchange had a net inflow of US $ 10.1 million in July.
The BoP was further buttressed by the foreign inflows into the government securities, which returned from the latter part of April 2016. In July, there has been a net inflow of US $ 238.5 million to the government securities but the first seven months demonstrate a net outflow of US $ 133.3 million.
The financial account was further strengthened with the proceeds from the syndicated loan facility amounting to US $ 300 million. “During the first seven months of 2016, long-term loans to the government recorded a net outflow of US $ 22.0 million compared to a net inflow of US $ 169.9 million during the first seven months of 2015,” the Central Bank said.
Worker remittances decline but tourist earnings up
The worker remittances have declined by 4.4 percent in July to US $ 572.8 million due to the prevailing economic stagnation in the Middle East and lower migration under the unskilled categories, the Central Bank said.
However, during the first seven months, the cumulative inflows from worker remittances have increased by 3.8 percent to US $ 4.2 billion.
The lower crude oil prices remained over two years have taken a toll on the economies of the oil producing Middle Eastern countries and have compelled to tighten their budgets. While the slowdown in unskilled migration has been good, the policy is likely to have taken a dent on the remittances, which have been the only sizable steady foreign inflow buttressing the ailing balance of payment (BoP). Meanwhile, the earnings from tourism – the only bright spot in the Lankan economy – has increased by 19.1 percent YoY in July to US $ 347 million, while the first seven-month earnings stood at US $ 1.9 billion, an increase of 16.7 percent from the same period last year. According to the latest arrival numbers, during the first nine months, the arrivals have risen by 14.6 percent to 1.5 million visitors and the authorities expect at least 2.2 million visitors by the end of the year.