Sri Lanka, in March, managed to reverse the declining streak it saw in exports during the first two months of the year but failed to contain its overall trade deficit as the imports for the same month grew at the fastest pace in 24 months.
The export earnings recorded an year-on-year (YoY) growth of 9.8 percent YoY to US $ 1.04 billion in March but the 19.4 percent growth in import expenditure to US $ 1.87 billion offset this favourable movement, widening the trade deficit by a significant 34.1 percent YoY to Rs.828 million for the month.
Meanwhile, the first three months’ trade deficit expanded by a considerable 35 percent YoY to US $ 2.5 billion as a result of a 14.9 percent increase in imports to US $ 5.3 billion, which surpassed the 1.3 percent YoY growth in export earnings to US $ 2.8 billion.
March exports were led by agricultural exports, which grew by 28.3 percent YoY to US $ 257.4 million followed by industrial exports, which registered a growth of 4.7 percent YoY to US $ 779.2 million.
The earnings from tea, seafood and spices contributed significantly to this growth as the price increase in tea and the removal of the fisheries ban by the European Union appeared to have assisted this performance.
“In spite of the decline in volume exported, earnings from tea exports increased by 18.6 percent, in value terms, due to a 22.9 percent (year-on-year) increase in prices,” a Central Bank statement said.
The earnings from tea exports during the first three months rose by 11.5 percent YoY to US $ 349.1 million. Meanwhile, the textile and garment exports, Sri Lanka’s largest commodity export, recorded a growth of 2.6 percent YoY to US $ 453 million in March after declining during the first two months consecutively.
The Central Bank cited the improved demand as the reason for better numbers.
However, the three-month earnings from textiles and garments declined by 6.8 percent YoY to US $ 1.3 billion.
Meanwhile, the higher global oil prices continued to weigh on the country’s import bill as the expenditure on fuel rose by as much as 51 percent in March to US $ 245 million while the three-month bill rose by 81 percent YoY to US $ 882 million as a result of higher expenditure on refined petroleum and coal imports to fulfil the increased demand for thermal and coal-based power generation.
As a result, the total bill for the import of intermediate goods rose by 25 percent YoY to US $ 2.8 billion during the first quarter.
The rice imports increased to US $ 53 million in March 2017 in comparison to just US $ 0.9 million recorded in the same month in 2016 due to the importation of rice to fulfil the shortage in the domestic market.
The expenditure on vehicle imports declined by 17.2 percent YoY to US $ 192 million during the quarter as a result of higher import duties, interest rates and down payments imposed earlier this year.
However, the total bill for the import of consumer goods into the country rose by 5.5 percent YoY to US $ 1.2 billion during the quarter, out of which food and beverage rose by 26.5 percent to US $ 505.2 million.
March tourism and remittance incomes down
Earnings from tourism declined in March by 2.5 percent YoY to US $ 322.7 million as the temporary closure of the runway at Bandaranaike International Airport (BIA) hit the arrivals.
However, for the first quarter, the earnings from tourism rose by 3.4 percent YoY to US $ 1.04 billion.
The worker remittances declined both during the month of March and during the quarter by 12.2 percent and 3.3 percent, respectively to US $ 593.4 million and US $ 1.73 billion.
The trend is likely to unsettle the policymakers as this is the largest foreign exchange earner for the country which buttresses the balance of payments (BoP) in the wake of likely disturbances to the remittance flows from Qatar, where a quarter of Sri Lankan migrants work.
Meanwhile, the overall BoP is estimated to have recorded a deficit of US $ 175.9 million in comparison to a deficit of US $ 720.2 million recorded during the corresponding period last year.