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Total exports of goods grew by 4.7% in 2018 to $ 11.9 billion while imports recorded a growth of 6% to $ 22.2 billion, the Central Bank said yesterday, which resulted in the trade deficit widening to $ 10.3 billion last year from $ 9.6 billion in 2017.
However, the trade deficit declined significantly in December 2018 YoY with a notable deceleration in import expenditure. Exports grew by 1.4% while imports fell by 15.3% in December 2018 YoY.
Reflecting the impact of policy measures implemented to discourage vehicle and nonessential consumer goods imports, the deficit in the trade account contracted significantly in December 2018, compared to the corresponding month of the previous year. However, on a cumulative basis, the trade deficit in 2018 widened in comparison to 2017, as import growth outperformed the growth in exports.
The terms of trade improved by 5.5% YoY to 91.7 index points in December 2018 due to an increase of export prices and a decline in import prices. However, on a cumulative basis, the terms of trade broadly remained unchanged at 105.5 index points in 2018 compared to 2017, as both the import and export price indices increased at a similar rate.
Earnings from merchandise exports increased marginally by 1.4% YoY to $ 1,033 million in December 2018. This marginal growth was mainly due to the base effect as the month of December recorded the second highest export value in 2017.
An increase in industrial exports contributed mainly to the growth of export earnings in December 2018, while agricultural and mineral exports declined. Export earnings from industrial exports increased in December 2018, mainly due to higher exports of textiles and garments. The higher demand for garments from USA and EU supported the increase in export earnings from this sub-sector.
Further, export earnings from rubber products increased during the month, owing to the improved performance in all categories except surgical and other gloves. Export earnings from food, beverages and tobacco, machinery and mechanical appliances, base metals and articles, chemical products, and transport equipment also rose, contributing towards the increase in industrial exports in December 2018. Meanwhile, export earnings from petroleum products, which performed well during the first eleven months of the year, declined in December 2018, due to the lower quantum of light oil exports.
However, bunker and aviation fuel exports increased during the month. In addition, export earnings from gems, diamonds and jewellery, leather, travel goods and footwear, plastics and articles thereof, and printing industry products, dropped in December 2018.
Earnings from agricultural exports decreased in December 2018, due to the poor performance in many subcategories except coconut, seafood, and vegetables. Despite an increase in export volumes of tea, its earnings declined during the month, owing to the sharp reduction recorded in average export prices. Meanwhile, export earnings from spices, minor agricultural products, rubber, and unmanufactured tobacco declined in December 2018.
However, earnings from coconut exports increased for the first time since September 2017 in December 2018, due to the increase in export earnings from coconut kernel products, particularly desiccated coconut. Export earnings from seafood also increased significantly in December 2018, owing to higher exports to the EU market.
The export volume index increased marginally by 0.2% in December 2018, while the export unit value index increased by 1.1%, implying that the growth in exports was driven mainly by higher prices, rather than volume in comparison to December 2017.
On a cumulative basis, export earnings increased by 4.7% to $ 11,890 million in 2018 from $ 11,360 million in 2017, driven by industrial exports, while agricultural and mineral exports declined. Higher performance registered in earnings from textiles and garments, petroleum products, rubber products, food, beverages and tobacco, and machinery and mechanical appliances, mainly contributed to the increase in industrial exports.
Earnings from agricultural exports declined in 2018, due to the poor performance in almost all subcategories except seafood exports.
On a cumulative basis, the export volume index increased marginally by 0.5% in 2018, while the export unit value index increased by 4.1%, implying that the growth in exports on a cumulative basis was mainly driven by higher prices, rather than volumes, in comparison to 2017.
Reflecting the effect of policy measures taken by the Central Bank of Sri Lanka (CBSL) and the Government, expenditure on merchandise imports declined by 15.3% YoY to $ 1,735 million in December 2018, recording the lowest import value for the year. All major import categories, namely intermediate goods, consumer goods, and investment goods, contributed to this decline.
Import expenditure on intermediate goods declined substantially in December 2018, mainly due to lower expenditure incurred on fuel, gold, and base metals. Expenditure on fuel imports declined significantly, benefiting from lower prices of crude oil and refined petroleum products, as well as lower import volumes of refined petroleum and coal. Reflecting the favourable impact of the imposition of customs duty on gold, expenditure on gold imports continued to decline to negligible levels in December 2018 as well. Meanwhile, expenditure on base metal imports also dropped, mainly due to lower imports of iron and steel. However, import expenditure on textiles and textile articles, wheat and maize, and fertiliser, increased during the month.
In December 2018, import expenditure on consumer goods declined, mainly due to lower expenditure on rice, vegetables, personal motor vehicles, and telecommunication devices. Expenditure on rice imports decreased significantly during the month, due to lower import volumes of rice with higher supply in the domestic market.
Reflecting the impact of policy measures to curtail vehicle imports, expenditure on personal motor vehicle imports showed a significant decline in December 2018, compared to the corresponding month of the previous year. Expenditure on non-food consumer goods, such as telecommunication devices, rubber products, home appliances, and cosmetics and toiletries, also decreased in December 2018, due to policy measures taken to restrict certain categories of non-essential consumer goods imports. However, import expenditure on dairy products, sugar, and clothing and accessories, increased during the month.
Expenditure on the importation of investment goods also declined in December 2018, mainly due to lower imports of machinery and equipment, and transport equipment, while imports of building material increased.
In December 2018, both import volume and unit value indices decreased by 11.6% and 4.2%, respectively, indicating that the decline in imports was driven by both low volumes and prices of imported goods, in comparison to the corresponding period of 2017.
On a cumulative basis, expenditure on merchandise imports increased by 6% to $ 22,233 million in 2018 in comparison to 2017, mainly driven by higher expenditure incurred on fuel, personal motor vehicles, textiles and textile articles, and fertiliser imports.
During 2018, the CBSL and the Government introduced several policy measures on imports of gold, personal motor vehicles, and non-essential consumer goods, to curtail import expenditure with the aim of mitigating the pressure on the balance of payments. As a result, expenditure on imports decelerated towards the end of the year.
On a cumulative basis, import volume index and import unit value index increased by 1.8% and 4.15% in 2018, respectively, indicating the growth in imports was mainly driven by the price impact, rather than the volume impact, in comparison to 2017.
Both the government securities market and the CSE witnessed foreign investment outflows in December 2018. The government securities market recorded a net outflow of $ 188 million during the month, resulting in a cumulative net outflow of $ 990 million for 2018.
The CSE recorded a net outflow of foreign investments of $ 26 million in December 2018, including both secondary and primary market transactions. On a cumulative basis, the CSE recorded a net outflow of $ 55 million in 2018, which comprises a net outflow of $ 133 million from the secondary market and an inflow of $ 77 million to the primary market.
Long term loans to the Government recorded a net outflow of $ 192 million during December 2018. However, on a cumulative basis, long-term loans to the Government recorded a net inflow of $ 558 million for 2018.
As at end December 2018, gross official reserves were estimated at $ 6.9 billion, which is equivalent to 3.7 months of imports. Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to $ 9.6 billion as at end December 2018, which is equivalent to 5.2 months of imports.
