SL’s exports growth on track but higher oil bill stretches trade gap

The restoration of the GSP Plus facility, higher prices received for tea and the weaker currency appear to have propelled Sri Lanka’s export earnings but the higher oil bill is showing signs of becoming a headache, threatening the attempts to contain the expanding trade gap in the import dependent economy.  In July, Sri Lanka exports grew by 13.9 percent year-on-year (YoY) to cross a billion dollar mark – the second month to exceed a billion dollars during the year. But the imports, which grew by 11.1 percent to US 1.59 billion stretched the trade gap to US $ 575.3 million from US $ 541 million a year earlier. 

As a result, the cumulative trade gap from January to July also widened to a high of US $ 5.3 billion from US $ 4.7 billion YoY as the US $ 11.7 billion expenditure on imports for the seven months exceeded the earnings from exports of just US $ 6.4 billion. 

In July, the industrial exports grew by 11.6 percent year-on-year (YoY) to US $ 757 million while the agricultural exports grew by a notable 21.8 percent yoy to US $ 253 million. 

Textiles and garments led the industrial exports as the earnings from such grew by 9.6 percent YoY to US $ 467 million in July, registering the highest monthly value recorded so far during the year. This is a reversal of the trend seen during the previous two months. 

“Garment exports to the EU market increased by 10.6 percent YoY to US $ 188 million in July 2017 signaling the positive impact of the restoration of the GSP Plus facility in May 2017”, the Central Bank said in a statement. 

For the seven months, the textiles and garments exports rose by 3.0 percent YoY to US $ 4.8 billion.  
Meanwhile, earnings from rubber products exports grew by 15.2 percent YoY to US $ 78.5 million, the food and beverage exports by 47 percent YoY to US $ 33.5 million and petroleum products exports by 21.5 percent YoY to US $ 36.6 million during July. 

The agricultural exports, which were led by predominantly tea exports, grew by a notable 21.8 percent YoY to US $ 253.3 million and out of which, tea earned US $ 143 million registering a growth of 33 percent YoY, supported mainly by the higher prices fetched at the auctions and partly by higher volumes. 

“The average export price of tea increased by 27.8 percent to US $ 5.36 per kg in July 2017 from US $ 4.19 per kg in July 2016 and US $ 4.86 per kg reported at end 2016. 

The volume of tea exports grew by 3.8 per cent to 26.7 million kgs in July 2017, recording the highest export volume of tea so far during the year”, the statement added. 

The cumulative earnings from tea exports for the seven months reached US $ 871 million, up 20 percent YoY.

Meanwhile, the rising oil prices in the world market pushed the oil bill and thereby the intermediate goods imports. 

The oil bill in July rose sharply by 52 percent YoY to US $ 216 million, largely driven by the importation of refined petroleum. The seven-month petroleum bill was up 47 percent YoY to US $ 1.36 billion. 

The average import price per barrel of crude has gone up to US $ 49.75 in July 2017 from US $ 46.10 in July 2016 but the prices are now flirting US $ 60 a barrel—a development that could cause a lot of trouble for Sri Lankan policy makers.  Further, the gold imports have also grown substantially during July to US $ 62 million registering a growth of 182 percent YoY. 

Besides, imports expenditure on textiles and textile articles also rose by little under 20 percent YoY with higher expenditure on fabrics and fibre, indicating a likelihood of increased exports of textiles and garments in the period ahead, the Central Bank said. 

These commodities pushed the total imports of intermediate goods by 28 percent YoY to US $ 902 million in July and by 14 percent YoY to US $ 6.3 billion for the seven months. 

Meanwhile, under the consumer goods imports, food and beverage imports led purely by the rice imports, grew by 10.2 percent YoY to US $ 133 million while the non-consumer goods imports, of which the bulk comprised of vehicles, edged down by 0.6 percent YoY to US $ 201.3 million. 

In July Sri Lanka imported vehicles worth of US $ 62. 2 million, up 16 percent YoY while for the seven months the country spent US $ 432 million on vehicle imports, down 9.0 percent YoY from the same period last year. 

The investment goods imports fell by 12.7 percent YoY to US $ 352 million, but the country’s construction sector grew strongly during the 2Q17.