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Exports in July declined by 7% after posting steady growth for more than a year, which expanded the trade deficit to $ 717 million but in cumulative terms the deficit for the first seven months of the year contracted by $ 2 billion in the first seven months, the Central Bank said yesterday.
The trade deficit widened in July as exports fell more than the decline in imports. Export earnings recorded a decline of 7% (year-on-year) after a steady growth for several months while import expenditure declined by 2.2% (year-on-year) in July.
The decline in export earnings in July can be largely attributed to a reduction in earnings from petroleum products due to lower prices of bunker fuel and the export of a naval craft in July 2018, which resulted in a higher export base in the corresponding month of the previous year.
The trade deficit widened to $ 717 million in July compared to the deficit of $ 316 million recorded in June.
The deficit in the trade account, which contracted significantly since November 2018, widened in July, both on a year-on-year basis and month-on-month basis. In cumulative terms, the deficit in the trade account contracted by $ 2,076 million to $ 4,314 million during the first seven months of 2019 in comparison to the corresponding period of 2018.
Meanwhile, the terms of trade, which represents the relative price of imports in terms of exports, improved by 3.9% (year-on-year) as export prices, on average, reduced at a slower pace than the decline in import prices. However, on a cumulative basis, the terms of trade deteriorated marginally by 0.8% during the first seven months of 2019 in comparison to the corresponding period of 2018.
Earnings from merchandise exports declined by 7% (year-on-year) to $ 999 million in July mainly due to a fall in industrial exports followed by agricultural exports.
Earnings from industrial exports declined mainly due to the lower earnings from petroleum products reflecting the impact of lower prices of bunker fuels despite an increase in volumes as well as the base effect of higher direct exports of other petroleum products recorded in July 2018.
Export earnings from transport equipment declined considerably by 77% reflecting the base effect of supplying a naval craft to Japan in July 2018. Rubber products, leather, travel goods and footwear and printing industry products also declined.
Meanwhile, export earnings from textiles and garments which recorded a monthly growth of 9.5% on average in the first half of 2019, recorded a moderate growth of 2.1% in July.
Earnings from agricultural exports decreased in July reflected by lower earnings from all subcategories except coconut, rubber and seafood. Earnings from tea exports declined due to the combined effect of low prices and volumes.
Earnings from spices declined due to poor performance in cinnamon and pepper. Export earnings from mineral exports also declined in July in comparison to July 2018. The export volume index in July dropped by 6.4% (year-on-year) while the export unit value index also declined by 0.5%, indicating that the subdued performance of exports was driven by the reduction in both volumes and prices, in comparison to July 2018.
Expenditure on merchandise imports contracted in July for the ninth consecutive month albeit at a lower rate of 2.2% (year-on-year) to $ 1,716 million. Imports of consumer goods mainly contributed to the decline, followed by imports of intermediate goods.
Expenditure on consumer goods imports declined reflecting the reduction in both food and beverages and non-food consumer goods. Lower imports of sugar and confectionary and beverages mainly contributed to the decline in imports of food and beverages while lower imports of personal motor vehicles resulted in the contraction in non-food consumer goods imports.
However, on a month-on-month basis, import expenditure on personal motor vehicles almost doubled due to the importation of vehicles using concessionary permits following the withdrawal of the suspension placed on opening letters of credit for vehicles imported under the concessionary permit scheme.
Imports of intermediate goods decreased marginally by 0.6% in July mainly due to lower imports of base metals, fertiliser and paper and paper boards. Import expenditure on base metals reduced by 48.7% which amounted to $ 47 million. However, fuel imports increased considerably due to a rise in the imported volume of crude oil. Import expenditure on wheat and maize and mineral products also increased.
Meanwhile, imports of investment goods increased marginally in July due to higher imports of building material. Imports of iron and steel and cement mainly contributed to the increase in building material. However, imports of machinery and equipment and transport equipment declined during this period.
The import volume index rose by 2.2% while the unit value index dropped by 4.3% indicating that the decline in imports was entirely driven by lower prices when compared to July 2018.
Foreign investments in government securities recorded a net outflow of $ 33 million in July. On a cumulative basis, net outflows from the government securities market amounted to $ 129 million during the first seven months of the year.
Foreign investments in the CSE, including primary and secondary market transactions, recorded a net inflow of $ 44 million during the month of July. Accordingly, financial flows to the CSE recorded a net inflow of $ 34 million during the first seven months of 2019.
Further, long term loans to the Government recorded a net outflow of $ 86 million during July. Gross official reserves stood at $ 8.3 billion by end-July, equivalent to 4.9 months of imports. Meanwhile, total foreign assets, which consist of gross official reserves and foreign assets of the banking sector amounted to $ 11 billion as at end-July, which was equivalent to six-and-a-half months of imports.
