4 July 2016 09:01 am
Sri Lanka’s trade balance in March worsened from a year ago as the deficit rose by as much as 20.2 percent to US $ 621 million due to a protracted slump in exports over imports, but an increase in tourism earnings and worker remittances buttressed the current account, the data released from the Central Bank showed.
The cumulative balance of trade during the quarter resulted in a deficit of US $ 1.9 billion, a contraction of 2.2 percent against the same period last year as the imports fell sharply. The three months’ imports were down by 4.1 percent year-on-year (YoY) to US $ 4.6 billion, while the exports were also down by 5.4 percent YoY to US $ 2.73 billion.
The exports in March alone narrowed by 11.2 percent YoY to US $ 945.4 million with “the largest contribution for this decline came from transport equipment followed by exports of spices,” the Central Bank said.
The transport equipment earnings have declined by 76.6 percent YoY to US $ 35.7 million mainly due to a dredger vessel, which was imported in 2014 for the use of the Port City development project and re-exported during the same month in 2015 resulting in significantly higher export earnings.
Continuing the declining trend, earnings from spice exports declined by 37.7 percent YoY to just US $ 18 million due to a substantial reduction in cloves and pepper exports resulting from lower harvests.
It was only recently the government decided to lift off the cess imposed on spice exports, which had been the bane for the industry.
The export earnings from tea – the largest agricultural export commodity – had a marginal decline of 0.6 percent YoY to US $ 112.7 million in March due to a continued decline from the traditional markets in Russia and the Middle East.
Textile exports – the country’s largest commodity export earner and the only bright spot in trade – edged up by 3.2 percent YoY to US $ 442 million due to a “growth in exports to the USA and non-traditional markets,” the statement added.
Textile and garment exports account for a 46.7 percent share from total export earnings.
During the first three months, the USA, the UK, India, Germany and Italy accounted for as much as 54 percent of total exports.
The policymakers seek to start negotiations for a separate trade agreement with the UK, which accounts for 10 percent of Sri Lanka’s exports – mostly textiles – should they decide to leave the European Union.
Meanwhile, the total import bill in March edged down by 0.9 percent YoY to US $ 1.57 billion predominantly due to a decline in consumer goods where vehicle imports for personal use came down by 39.4 percent YoY to US $ 80.2 million in response to the recent policy measures to curb such imports.
Despite the increase in prices, wheat and maize imports sank by 97.6 percent YoY to just US $ 1.3 million due to non-importation of wheat by
Prima Ceylon.
The fuel bill in March rose by 4.2 percent YoY to US $ 162 million but the three-month cumulative bill declined by 31.5 percent YoY to US $ 486 million.
“However, import expenditure on machinery and equipment, building materials and textile and textile articles increased significantly by 43.2 percent, 47.4 percent and 25.7 percent, respectively YoY, indicating the possible expansion in future economic activities,” the Central
Bank stated.
Meanwhile, fertilizer imports virtually halved to US $ 12.8 million from a year ago.
Sri Lanka’s Central Bank has settled the US $ 1.1 billion swap arrangement entered into with the Reserve Bank of India (RBI) in 2015 on March 8, 2016.
Sri Lanka entered into a US $ 1.5 billion swap arrangement with the RBI in 2015 as a temporary cushion to support the external liquidity and reserves when it was coming under stress due to foreign selling in government bonds and higher imports.However, the Central Bank managed to repay US $ 400 million in 2015 itself.
At the beginning of this year, Sri Lanka was also seeking to enter into US $ 1.0 billion worth of swap with China but it has not come through yet, instead the country is looking at raising between US $ 500 to US $ 1.0 billion through Panda bonds issued in China.
Further, “Sri Lanka received US $ 400 million under the SAARCFINANCE currency swap agreement on March 8, 2016 and received US $ 700 million from another currency swap agreement with the RBI by end-March 2016, which was subsequently settled in June 2016,” the Central Bank said.
Despite receiving the International Monetary Fund (IMF) US $ 1.5 billion lifeline, Sri Lanka’s external liquidity and liability woes are far from manageable.
The investment-hungry nation received a meagre US $ 164.5 million in foreign direct investments (FDIs) during the first quarter, against US $ 346.4 million received during the corresponding period.
The non-aligned foreign policy, deeper engagement and proactive response to alleged human rights violations and the much hyped social market economic model pursued by the unity government have done little to convince the global investor community of the prospects in the Indian Ocean island’s economy.
But the same investors have invested close to US $ 10 billion in Myanmar – the emerging South Asian democracy – during 2015 after it ended decades-long military rule a couple of years ago, while Sri Lanka is still reeling with bruises from its three-decade long war, which militarily crushed the terrorists in 2009.
Meanwhile, tourism earnings – the only silver lining in the Lankan economy – brought in US $ 1.2 billion during the four months to April compared to US $ 996 during the corresponding period last year, recording an increase of 20 percent.
Though the future potential looks dim, the remittance income from workers during the first quarter rose by 6.8 percent YoY to US $ 1.8 billion.
With outflows outweighing the inflows into the country, the balance of payment (BoP) continued to record a deficit of US $ 720.2 million for the quarter in comparison to a deficit which exceeded US $ 1.0 billion during the same period last year.
Earlier this year, international rating agencies downgraded the Lankan economy over its fiscal indiscipline, vulnerable external sector and slowing economy.