Negative start for exports in 2017; trade deficit widens 35% due to higher imports

The country’s export sector has begun 2017 on a negative note largely owing to a subdued performance by industrial goods whilst a 13% rise in imports saw the trade deficit widen by 35% or $ 243 million from January last year.

Releasing data for January, the Central Bank said the external sector demonstrated a modest performance.

During the month, the trade deficit widened as a result of increased import expenditure and a decline in export earnings. However, foreign currency receipts in terms of earnings from tourism recorded a relatively high growth in January 2017 while workers’ remittances grew at a moderate rate, year-on-year. 

The Government securities market and the Colombo Stock Exchange (CSE) witnessed net outflows during January 2017.

Earnings from exports at $ 865 million in January 2017 were down by 3.8% year-on-year, reflecting subdued performance mainly in earnings from industrial exports despite an increase recorded in agricultural exports.

Export earnings from industrial exports, which account for about 77% of total exports, declined by 6.7%, year-on-year, to $ 668 million in January 2017. This was mainly due to the decline in earnings from textiles and garments, rubber products and gems, diamonds and jewellery. Earnings from textiles and garments exports, which account for around 49% of total export earnings, contracted by 8.2%, year-on-year, to $ 426 million in January 2017, reflecting lower demand for garments from both traditional and non-traditional markets. 

Export earnings from rubber products and gems, diamonds and jewellery declined by 18.7% and 28.8%, respectively, due to decreases in all subcategories related to both items. 

In addition, earnings from leather, travel goods and footwear also contributed substantially to the decline in industrial products during January 2017. 

However, export earnings from machinery and mechanical appliances, base metals and articles, printing industry products and wood and paper products showed a growth in January 2017, when compared to the previous year. 

Earnings from agricultural exports grew by 7.9%, year-on-year, to $ 194 million in January 2017, reflecting improved performances in all subsectors except minor agricultural products and unmanufactured tobacco. Earnings from spices showed an impressive growth of 33.7%, year-on-year, in January 2017 mainly due to the improved performance in cloves, nutmeg and mace and cinnamon. 

In addition, earnings from seafood exports increased by 19.7%, year-on-year, in January 2017 especially due to the 107.3% growth in seafood exports to the EU. Earnings from tea exports, which account for 12% of total exports, increased by 2.1%, year-on-year, due to increased average prices which have been on a rising trend since September 2016, despite the decline in volume exported. 

The leading markets for merchandise exports of Sri Lanka in January 2017 were the US, the UK, India, Germany and Italy accounting for about 53% of the total exports.

Expenditure on imports increased substantially by 13.2% to $ 1.8 billion, continuing the double-digit growth in imports for the fourth consecutive month.

Expenditure on intermediate goods was the main driver for this growth followed by consumer goods imports. However, expenditure on investment goods imports declined in January, reversing the year-on-year growth trend started from January 2016.

Expenditure on intermediate goods imports rose by 18.6% to $ 950 million. This was mainly due to higher expenditure on fuel led by refined petroleum imports which rose by 101.6% as a result of higher volumes imported for increased thermal power generation with prevailing drought conditions as well as higher international oil prices.

Gold imports grew sharply to $ 64 million. 

Expenditure on consumer goods rose by 4.4% to $ 359 million whilst investment goods imports declined by 2.6% to $ 432 million.