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Overview
Sri Lanka’s external sector improved further with continued inflows being recorded in the Balance of Payments (BOP). Cumulative foreign exchange inflows to the country in the form of earnings from exports and tourism as well as workers’ remittances strengthened the current account of the BOP during the first eleven months of 2014. This, together with inflows to the financial account by way of foreign direct investments, inflows to the Colombo Stock Exchange (CSE) and private sector, has supported the BOP to record a higher surplus.
Export performance
Export earnings on a cumulative basis increased by 7.5% (year-on-year) to $ 10.1 billion during the first eleven months of the year. However, earnings from exports declined by 10.7%, year-on-year, to $ 921 million in November 2014. The decline in the growth of exports in November 2014 was mainly due to the base effect as a substantial growth in export earnings was recorded in November 2013. The decline in exports in November 2014 was largely due to decline in earnings from textiles and garments followed by rubber products and gems, diamonds and jewellery categorised under industrial exports.
Earnings from textiles and garments exports declined by 14.4% in November 2014 with the decline in garment exports to the EU and to the USA by 16.6% and 17.8%, respectively. Export earnings from rubber products declined mainly due to the decline in rubber tyre exports. Export earnings from tea showed a moderate decline of 4.5% mainly due to the lower prices despite higher volumes.
Meanwhile, export earnings from spices also declined as the lower production weighed on the volumes in spite of favourable prices in certain categories including cinnamon, pepper and cloves. However, export of coconut products and minor agricultural products increased by 32.6% and 69.1%, respectively reflecting their potential for further expansion. The leading markets for merchandise exports of Sri Lanka during the first eleven months of 2014 continued to be the USA, UK, Italy, India and Germany accounting for about 50% of total exports.
Import performance
Expenditure on imports increased moderately by 4.8% year-on-year to $ 1,645 million in November 2014, while on a cumulative basis imports grew by 7.1% to $ 17,618 million during the first eleven months of 2014. The increase in import expenditure in November 2014 was mainly led by imports of consumer goods with significant increase in imports of personal motor vehicles such as motor cycles and motor cars as well as rice imports. Imports of intermediate good categories increased marginally in November 2014 despite the significant decline in imports of fuel, wheat and maize and food preparations. Imports of textiles and textiles articles, fertilizer, chemical products, rubber and rubber based articles and paper and paper boards increased considerably during the month. Import expenditure on fertilizer increased by 75.7% in November 2014 due to the larger volumes imported for the Maha season. Meanwhile, import expenditure on fuel declined by 26.5% due to the significant decline in crude oil imports owing to lower prices and volumes. Meanwhile, the import expenditure on investment goods declined by 10.4% reflecting decreases in all sub categories. During the first eleven months of 2014, the main import origins continued to be India, China, UAE, Singapore and Japan accounting for about 59% of total imports.
Trade balance
The trade deficit in November 2014 widened to $ 724 million in comparison to $ 538 million in November 2013. Accordingly, the trade deficit during the first eleven months of 2014 widened by 6.6% over the corresponding period in 2013.
Earnings from tourism
Tourist arrivals grew at a healthy rate of 9.4%, year-on-year, to 119,727 in November 2014 from 109,420 in November 2013. India, China, UK, Germany and Maldives were the top five sources of tourist arrivals accounting for 49.1% of total arrivals in November 2014. Earnings from tourism are estimated to have increased by 17.5% to $ 173 million in November 2014 compared to $ 147.3 million in November 2013. Meanwhile, in cumulative terms, tourist arrivals recorded a growth of 20.3% during the year to November while earnings from tourism increased by 29.2% to $ 1,948.3 million during the period.
Workers’ remittances
Workers’ remittances increased by 9.1%, year-on-year, to $ 619.3 million in November 2014 from $ 567.8 million in November 2013. Meanwhile, cumulative inflows of workers’ remittances rose to $ 6,309 million during the first eleven months of 2014 from a corresponding figure of $ 5,804.1 million during the same period of 2013, resulting in a growth of 8.7%.
Financial flows
The financial account of the BOP strengthened during the year upto November with continued inflows to the Colombo Stock Exchange (CSE), banking sector and the government. For the first eleven months of the year, the government has received long term loan disbursements amounting to $ 1,438.7 million compared to $ 1,547.8 million during the same period of 2013.
Net inflows to the CSE during this period stood at $ 150.2 million, with a net inflows of $ 43.3 million being recorded in November 2014. Further, inflows to Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) during the first eleven months in 2014 amounted to $ 450 million. Meanwhile, the government securities market recorded a net outflow of $ 104.3 million by end November 2014.
Overall BOP position
During the period from January to November 2014, the BOP is estimated to have recorded a surplus of $ 1,628.3 million compared to the surplus of $ 581.7 million in the corresponding period of 2013.
International reserves
Notwithstanding outflows on account of foreign debt service payments amounting to $ 2,054.2 million and IMF-SBA payments amounting to $ 704.4 million, Sri Lanka’s gross official reserves continued to remain high at $ 8.3 billion as of end November 2014. Meanwhile, total foreign assets, which include foreign assets of the banking sector, amounted to $ 9.6 billion. In terms of months of imports, gross official reserves were equivalent to 5.2 months of imports as at end November 2014, while total foreign assets were equivalent to 6.0 months of imports.
Exchange rate behaviour
Sri Lanka rupee remained stable against the US dollar with a marginal depreciation of 0.3% by end 2014. Based on cross currency exchange rate movements, the Sri Lankan rupee appreciated against the Japanese yen by 13.5%, the euro by 13.2%, the Canadian dollar by 8.5%, the Australian dollar by 8.4%, the pound sterling by 5.7% and the Indian rupee by 2.1% by end 2014.
