Foreign inflows gather momentum

The external trade of the country may look challenging, but foreign inflows appear robust as per latest data disclosed by the Central Bank yesterday.

Workers’ remittances in March amounted to $ 550 million, up 9.2% year-on-year (yoy) whilst for the first quarter it grew by 17.2% to $ 1.5 billion. Earnings from tourism in March 2012 grew at a healthy rate of 28.8% to $ 94 million and by 28.6% to $ 268 million in the first quarter.

In relation to the Capital and Financial Account of the Balance of Payments (BOP), the Central Bank said there has been a substantial inflow of foreign exchange, reflecting enhanced global investor confidence in Sri Lanka as an emerging market.

Foreign Direct Investments (FDI) recorded an inflow of $ 220 million during the first quarter of 2012, compared to $ 197 million over the same period last year. Further, FDI inflows amounted to $ 308 million by the first week of May 2012.

Portfolio investments, including investments in the Colombo Stock Exchange (CSE), also increased significantly to $ 159 million, on a net basis.

In addition, foreign borrowings by commercial banks increased, led by the recent international bond issue of $ 500 million by the Bank of Ceylon (BOC), which recorded an oversubscription of 7.7 times and a total order value of $ 3.86 billion in May 2012.

With respect to inflows to other commercial banks, long-term borrowings amounted to $ 353 million and short-term borrowings amounted to $ 414 million by the second week of May 2012.

A significant increase has also been shown in foreign investments in Government securities, with net inflows to Treasury bills and bonds increasing to $ 406 million in the first quarter of 2012, from $ 79 million during the first quarter of 2011. This can be mainly attributed to the increase in threshold for foreign investments in December 2011.

Overall, there has been an improvement in the BOP in the first quarter of 2012 compared to the last quarter of 2011. The lower trade deficit, the improved surplus in the services and current transfers and the lower deficit in income account helped narrow the current account deficit to $ 978 million in the first quarter of 2012 compared to a deficit of $ 1,695 million in the last quarter of 2011.

Strengthened inflows into the Capital and Financial Account also helped increase the net surplus of $ 1,170 million in the last quarter of 2011 to $ 1,395 million in the first quarter of 2012. With these improvements, the overall BOP deficit of $ 1,102 million during the fourth quarter of 2011 is estimated to have narrowed down significantly to $ 251 million in the first quarter of 2012.

By end March 2012, gross official reserves, excluding Asian Clearing Union (ACU) balances, amounted to $ 5,730 million whereas total external reserves, which include gross official reserves and foreign assets of commercial banks amounted to $ 6,957 million. In terms of months of imports, gross official reserves and total external reserves by end March 2012 were equivalent to 3.3 months and 4.0 months, respectively.