27 December 2018 12:00 am
By Nishel Fernando
Sri Lanka’s merchandise export earnings are likely to accelerate to 6.3 percent year-on-year (YoY) next year, while the growth of cost of merchandise imports is set to decelerate to 6.6 percent YoY, easing off the pressure on balance of payment, according to the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
The UNESCAP, in its latest ‘Asia-Pacific Trade and Investment Report 2018’, estimated that Sri Lanka’s merchandise exports would achieve a growth of 4.8 percent at end-2018, despite a one percent drop in export volumes.
It is also estimated that the growth in merchandise exports would average at 10.1 percent YoY at the end of the year, driven mainly by an 8.5 percent increase in the prices of goods.
However, the UNESCAP predicted that the merchandise export growth would pick up next year, growing at around 6.3 percent YoY, driven by a 4.9 percent YoY growth in the export volumes.
Meanwhile, the growth in merchandise imports is forecasted to decelerate to 6.6 percent YoY, as the prices of imported goods are expected to ease off.
During the first 10 months of this year, the export earnings increased by 5.1 percent YoY to US $ 9876.7 million, while the import expenditure grew by 10.3 percent YoY to US $ 18,733.5 million. Consequently, the trade deficit for the period expanded to US $ 8, 857 million, from US $ 7,591 million reported for the same period, last year.
The UNESCAP noted that despite the foreign direct investment inflows to South and Southwest Asia decreasing by 6 percent to US $ 63 billion in 2017, the Islamic Republic of Iran, Nepal, Pakistan and Sri Lanka witnessed sharp rises of 49 percent, 87 percent, 13 percent and 53 percent, respectively.
Meanwhile, the UNESCAP calculated that if the threatened tariff increases are implemented by the United States, China and other countries, Sri Lanka’s economy could witness positive spillovers, in terms of trade and investment, accounting for around 0.2 percent of the country’s gross domestic product.
“To avoid the United States tariffs, multinational operations could reorganise their GVCs. Given that the United States remains the dominant market for the final products of GVCs, final production would move from China to other economies, including back to the United States.
Therefore, despite the immediate downside risks and vulnerabilities from indirect exposure, some Asia-Pacific economies might gain opportunities arising from the redirection of trade and investment away from China,” the authors of the report noted.