External sector posts modest performance in August

Central Bank said yesterday the external sector recorded a modest performance during August 2016 amidst the widening of the trade deficit while inflows from tourism and workers’ remittances grew at a healthy rate. 

“Although exports recorded a considerable growth during August 2016, imports also grew resulting in a widening of the trade deficit,” the Central Bank said. 

However, earnings from tourism and workers’ remittances grew, cushioning the impact of the trade deficit. Inflows to the financial account were supported by foreign investments to the government securities market and the Colombo Stock Exchange (CSE) and long-term loan inflows to the government in August 2016.

Exports in August 2016, valued at $866 million, were 8.4% higher than export earnings in August 2015, reflecting an increase for the first time after February 2015. This increase was partly a result of the low level of export income recorded in August 2015.

Tea and rubber products contributed mainly to the year-on-year increase in export income. Earnings from tea exports increased due to an increase in the quantity of black tea exported. However, the average export price of tea in August 2016 was same as in August 2015 ($4.33 per kilogram). Improved performance in all sub categories of rubber product exports, particularly surgical and other gloves and rubber tires, contributed for the increase in rubber product exports. In addition, exports of iron and steel articles, transport equipment, food, beverages and tobacco (particularly vegetables, fruit and nut preparations, and manufactured tobacco), and spices (particularly cinnamon, nutmeg and mace) also contributed significantly to the growth in exports. However, income from export of garments declined slightly by 2.1% during August 2016, year-on-year. Exports of garments to the EU increased by 9.0% in August 2016 compared to the same period in 2015, whereas garment exports to other destinations declined.

Despite the year-on-year increase in the month of August, cumulative export earnings during the first eight months of 2016 declined to $6,865 million which is 4.1% lower than the export earnings from the same period in 2015. Income from garment exports increased by 3.5% during the first eight months of 2016, when compared to the corresponding period in 2015. However, this increase in export earnings was offset by a decline in export incomes from transport equipment, petroleum products (particularly bunker and aviation fuel), tea, spices, (particularly pepper and cloves), gems and diamonds, leading to the aforementioned total reduction in export incomes. The main merchandise export destinations were USA, UK, India, Germany and Italy, which received about 53.0% of Sri Lanka’s exports.

Expenditure on imports during August 2016 was $1,649 million which is an 8.3% increase compared to August 2015. This increase is the first significant year-on-year increase recorded after June 2015. The decrease in expenditure on consumer goods, which was driven by the reduction in vehicle imports, was offset by the increase in import expenditure on both intermediate goods and investment goods, leading to the year-on-year increase in import expenditure.

The increase in import expenditure on intermediate goods was driven mainly by expenditure on textiles and textile articles, gold and mineral products, which contributed by 52.4%, 34.7% and 14.4% to the year-on-year increase in import expenditure in August 2016. Import expenditure on fuel that includes crude oil, refined petroleum and coal, was 3.2% lower in August 2016 on a year-on-year basis with import expenditure on crude oil declining by 13.3% to $69 million. Volume of crude oil imports increased slightly by 2.0% on a year-on-year basis, while the price was declined by a significant 14.9%. Import expenditure on investment goods increased by 18.1%, year-on-year, in August 2016 as expenditure on machinery and equipment increased by 35.9%, with higher imports in almost all subcategories. Import expenditure on building materials also rose by 18.2% on a year-on-year basis, reflecting the increase in construction activities in the economy. Import expenditure on transport equipment declined by 17.6%, year-on-year, due to a reduction in import expenditure on auto-trishaws and buses. However, expenditure on consumer goods declined by 6.3%, year-on-year, mainly due to the 53.7% decrease in import expenditure on personal vehicles in August 2016 compared to August 2015, due to increase in import taxes that led to a decline in the numbers of personal motor-vehicles. Import expenditure on all other non-food consumer goods increased in August 2016, on a year-on-year basis. Meanwhile, expenditure in respect of imports of food and beverages increased by 17.8% on a year-on-year basis while expenditure on sugar, beverages and spices increased by 80.9%, 140.3% and 73.3%, respectively. Higher expenditure on sugar was driven both by higher prices and higher volumes.

On a cumulative basis, expenditure on imports during the first eight months of 2016 reached $12,403 million which is a 1.6% decline from the level reached at the end of the first eight months of 2015, mainly due to the import of personal vehicles, fuel, commercial transport equipment, and cereals and milling industry products. However, non-fuel imports during the first eight months of 2016 were 1.2% higher than the corresponding period in 2015. Imports from China, India, Japan, Singapore and the United Arab Emirates accounted for about 57.2% of total imports.

Although export earnings increased in August 2016 compared to August 2015, the higher increase in import expenditure, resulted in the trade deficit to increase to $783 million in August 2016. The cumulative trade deficit of $5,538 million at end August 2016 too was higher by $89 million than the cumulative trade deficit recorded at end August 2015.