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Sri Lanka’s trade deficit in the first half has widened by over $ 1 billion to $ 4.3 billion from a year earlier on account of rising imports, though exports have performed commendably.
The Central Bank said yesterday the deficit in the trade account widened on a year-on-year basis for the fourth consecutive month in June 2021.
“Both exports and imports were significantly higher in June 2021 compared to June 2020. Considering the first half of the year, although exports recorded a healthy growth, import expenditure increased at a higher pace,” the Central Bank added.
It said the deficit in the trade account widened on a year-on-year basis to $ 652 million in June 2021 compared to the deficit of $ 161 million recorded in June 2020. The cumulative deficit in the trade account in the first half of the year also widened to $ 4,316 million from $ 3,262 million recorded in the corresponding period in 2020, and $ 3,597 million recorded in the corresponding period in 2019.
Terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated by 16.7% in June 2021 compared to June 2020, as the increase in import prices were higher than the increase of export prices, compared to June 2020.
The Central Bank also said Sri Lanka maintained large trade surpluses with the USA and European countries. These countries were Sri Lanka’s main export destinations for textiles and garments, in particular.
Sri Lanka maintained large trade deficits with Asian countries, which were the main import sources.
On inflows, the Central Bank said a marginal net foreign investment outflow was recorded in the Government securities market in June 2021. Cumulative net outflow from the government securities market during the first half of 2021 amounted to $ 24 million, while the outstanding exposure remained low at $ 12 million at end June 2021. Meanwhile, the CSE recorded a net outflow of $ 6 million and $ 125 million in June 2021 and during the first half of 2021, respectively.
Gross official reserves stood at $ 4.1 billion at end June 2021, which provided an import cover of 2.6 months. Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to $ 6.8 billion at end June 2021, providing an import cover of 4.5 months.
The level of reserves reported above does not include the three-year bilateral currency swap facility amounting to CNY 10 billion (approximately $ 1.5 billion) between the People’s Bank of China (PBoC) and the Central Bank of Sri Lanka.
