Balance of Payments records healthy surplus by July 2011

Balance of Payments (BOP), which includes all foreign currency inflows and outflows, recorded a surplus of US$ 1,006 million by end July 2011. Gross official reserves, excluding Asian Clearing Union (ACU) balances, increased to US$ 8,099 million by end July 2011 from US$ 6,610 million by end 2010.

The improved macroeconomic environment and several initiatives to attract foreign inflows contributed towards strengthening the country’s external reserve position to this level. Total external reserves (excluding ACU balances) increased to US$ 9,487 million by end July 2011. In terms of months of imports, gross official reserves and total external reserves by end July 2011 were equivalent to 5.7 months and 6.7 months, respectively.

During the first seven months of 2011, the cumulative earnings from exports and expenditure on imports increased by 30.3% to US$ 6,014 million and 48.3% to US$ 11,091 million, respectively. The increase in imports expenditure was spurred by the increase in imports of intermediate goods and investment goods, such as machinery and equipment and building materials, which set a satisfactory foundation for future growth.

At the same time, the average import price of crude oil increased by 36.6% to US$ 107.95 per barrel in the first seven months of 2011, from US$ 79.03 per barrel for the same period of 2010. This rise in crude oil prices resulted in an increase in the petroleum bill by 39.4% to US$ 2,493 million in the first seven months of 2011.

Supported by the healthy growth in the tourism sector, the surplus in the services account increased to US$ 461 million in the first seven months of 2011, while cumulative inflows on account of workers’ remittances amounted to US$ 2,922 million during the same period. Accordingly, despite the widened trade deficit, inflows to the services account and the workers’ remittances contributed to set off around two thirds of the trade deficit.

At the same time, the total foreign inflows to the Government (including the 10-year Sovereign Bond proceeds of US$ 1 billion) during the first seven months amounting to US$ 2,754 million and foreign direct investments (FDI) in the first half of 2011 amounting to US$ 413 million, enabled the overall BOP to record a comfortable surplus of US$ 1,006 million by end July 2011.

In the meantime, the exchange control relaxations effected by the Central Bank in November 2010 facilitated foreign exchange transactions and business activities during the past few months. The relaxation measures which enabled corporates to borrow from foreign sources resulted in 14 private companies obtaining foreign loans amounting to US$ 197.1 million by mid-September 2011, while the permission granted for foreign companies to open places of business resulted in 20 new foreign companies commencing business in Sri Lanka this year.