• Trade deficit reduces by 11.9% on sharply declining imports
• Petroleum and jewellery exports drop hardest but apparel increases by 10.3% 
• Earnings from exports decline 2% during first two months of 2016 to $1.7b 

Reflecting lower global commodity prices, earnings from exports declined by 1.7% year-on-year to $ 888 million in February 2016, the Central Bank said yesterday, as the trade deficit contracted by 11.9% in the same month to $ 552 million, owing to the sharp decline in imports which significantly outpaced the fall in exports. 

However, cumulative trade deficit decreased by 10.5% to $1,246 million in the first two months of 2016 from $1,391 million in the corresponding period in 2015. The largest contribution to this decline was from the petroleum products exports, followed by gems, diamonds and jewellery and spices exports. Earnings from petroleum products in February 2016 declined by 55.6%, year-on-year, reflecting a reduction in both bunker fuel export volume and average price level.

Gems, diamonds and jewellery exports showed a drop of 33.2% in February 2016, recording declines in all sub categories. Meanwhile, export earnings from Economic Research Department spices decreased by 34.8% owing to reductions in earnings from cloves, pepper and nutmeg due to lower export volumes. 

Tea and rubber products also contributed significantly for the decline in export earnings. Export earnings from tea and rubber products dropped by 6.8% and 10.7%, respectively, in February 2016, due to depressed demand and lower prices.

“However, exports of textiles and garments, which comprise nearly 52% of total exports, increased by 10.3% during the month and helped to contain the negative growth of total exports to some extent. Garments exports to the European Union and the United States have increased by 11.7% and 8.7%, respectively, in February 2016.”

On a cumulative basis, earnings from exports declined by 2.0% to $1,783 million during the first two months of 2016. The leading markets for merchandise exports during the first two months of 2016 were the USA, UK, Germany, India and Italy accounting for about 54% of total exports.

Expenditure on imports declined by 5.9%, year-on-year, to $1,439 million in February 2016, continuing the year-on-year declining trend observed in the preceding seven months. The largest contribution to this decline came from fuel imports, which declined by 43.7% to $ 149 million, as average crude oil import price declined to $35.36 per barrel in February 2016 compared to $ 69.52 per barrel recorded in February 2015. 

However, import volumes of refined petroleum products increased mainly due to higher thermal power generation. Continuing the declining trend observed from May 2015, expenditure on rice imports declined to $0.7 million in February 2016, in comparison to $18 million in the corresponding month of 2015 due to the bumper paddy harvest obtained in 2015. 

In addition, import expenditure on transport equipment and building materials, which is categorised under investment goods, decreased significantly by 24.9% and 10.4%, respectively, in February 2016. However, import expenditure on machinery and equipment increased significantly by 21.2% during the month.

On a cumulative basis, expenditure on imports during the first two months of 2016 decreased by 5.7% to $3,028 million, driven by fuel imports. During the first two months of 2016, main import origins were China, India, Japan, Singapore and UAE accounting for about 56% of total imports.

The Government securities market continued to experience a net outflow in terms of foreign investments with a cumulative net outflow of $ 572.3 million during the first three months of 2016 compared to a net outflow of $15.4 million in the corresponding period of 2015. 

The Colombo Stock Exchange (CSE) recorded a net outflow of $12.5 million up to end March 2016, which comprised net outflow of $ 13.8 million of foreign investment from the secondary market and inflows of $ 1.3 million to the primary market. Long term loans to the Government registered a net outflow of $ 9.6 million in February 2016, compared to the net inflow of $ 6.4 million recorded in February 2015.

In February 2016, the BOP is estimated to have recorded a deficit of $534 million, compared to the deficit of $692 million in the corresponding period of 2015. 

Sri Lanka’s gross official reserves as at end February 2016 amounted to $6.6 billion, equivalent to 4.2 months of imports while total foreign assets amounted to $8.5 billion, equivalent to 5.5 months of imports.

Tourism earnings grow 22.1% 

• Workers’ remittances rise 8.3% but CB warns low oil prices could weigh down growth  

Cumulative earnings from tourism grew by 22.1%, year-on-year, to $969.3 million during the first two months of 2016, with workers’ remittances also rising by 8.3% to $554.2 million in February.  

Tourist arrivals continued to record a healthy growth of 22.8% in March 2016 with 192,841 arrivals. On a cumulative basis, tourist arrivals had grown by 22.1% during the first quarter of 2016 when compared to the corresponding period of 2015. 

While China and India continued to lead the performance of tourist arrivals, recording a growth of 46.6% and 32.2%, respectively, during the first quarter of 2016, tourist arrivals from Europe and the Middle East regions continued to grow at 20.6% and 13.7%, respectively, despite economic and political concerns in these regions. 

Receipt of workers’ remittances grew by 8.3% to $554.2 million in February 2016. The expansion in workers’ remittances is partially attributable to the base effect with the lower performance observed in February 2015. 

The currently prevailing low oil prices and the resultant stagnation of income levels in the Middle Eastern countries, are expected to continue to weigh negatively on inflows from workers’ remittances.