Tuesday Dec 03, 2024
Tuesday Dec 03, 2024
Monday, 1 July 2024 00:00 - - {{hitsCtrl.values.hits}}
Sri Lanka’s external sector saw improvement in May as per the latest data released by the Central Bank.
The CBSL said in May 2024, the external sector was supported by a narrowed trade deficit, higher inflows to the services account and higher workers’ remittances.
Merchandise trade deficit on Y-o-Y basis narrowed in May 2024, although widened during January-May 2024.
Services sector inflows (excluding tourist earnings) amounted to $ 306 million in May 2024 compared to $ 265 million in May 2023.
Workers’ Remittances amounted to $ 2,624 million in Jan-May 2024 compared to $ 2,347 million in Jan-May 2023. Tourist Earnings amounted to $ 1,406 million during Jan-May 2024 compared to $ 752 million during Jan-May 2023.
Gross Official Reserves stood at $ 5.4 billion at end May 2024, recording over $ 1 billion increase from end 2023.
CBSL said the deficit in the merchandise trade account narrowed to $ 393 million in May 2024 from $ 447 million a year earlier supported by a relatively larger contraction in import expenditure than that of export earnings. Similarly, the trade deficit in May 2024 narrowed compared to $ 558 million recorded in April 2024. The cumulative deficit in the trade account during January to May 2024 widened to $ 2,170 million from $ 1,926 million recorded over the same period in 2023.
Earnings from merchandise exports recorded a marginal decline of 0.8% to $ 1,011 million in May 2024 compared to $ 1,019 million in May 2023. A decline in earnings was observed in agricultural exports, while industrial exports and mineral exports increased in May 2024.
The increase in industrial goods exports in May 2024 was mainly contributed by petroleum products due to the increase in volumes of bunkering and aviation fuel exports. Earnings from exports of agricultural goods declined in May 2024 mainly driven by lower exports of minor agricultural products (led by areca nuts) and seafood, while export earnings from spices and tea also declined to some extent.
Earnings from mineral exports also increased in May 2024. Earnings from exports improved in May 2024, led by higher textiles and garment exports, compared to April 2024.
Expenditure on merchandise imports declined by 4.2% to $ 1,405 million in May 2024 compared to $ 1,466 million in May 2023. The expenditure of consumer and intermediate goods contributed to this decline in import expenditure, while an increase was recorded in the import of investment goods.
The decline in expenditure on consumer goods imports in May 2024 compared to a year ago was due to the broad-based decline in expenditure on food and beverages (led by lower sugar and dairy products imports), although there was an increase in non-food consumer goods imports. Expenditure on intermediate goods imports declined primarily due to lower fuel imports compared to May 2023. However, expenditure on wheat, textiles and textile articles and plastics and thereof increased to some extent in May 2024. Expenditure on investment goods recorded a broad-based increase, driven primarily by higher imports of machinery and equipment. Expenditure on imports in May 2024 declined compared to April 2024 primarily due to the decline in fuel expenditure.
Terms of trade, i.e., the ratio of the price of exports to the price of imports, marginally improved by 0.3% in May 2024 compared to May 2023, as the decline in the prices of imports surpassed the decline in the prices of exports.
The export volume index increased by 6.8%, while the unit value index declined by 7.1%, implying that the marginal decline in export earnings in May 2024 compared to May 2023 can be attributed to lower export prices.
Similarly, the import volume index improved by 3.4%, while the unit value index declined by 7.4%, implying that the decline in import expenditure in May 2024 compared to May 2023 was also driven by the price effect.
Earnings from tourism in May 2024 were estimated at $ 154 million, in comparison to $ 226 million in April 2024 and $ 100 million in May 2023.
Sea transport and Computer and IT/BPO related services were the major contributors to the increase in inflows to the rest of the services sector in May 2024. However, there was a moderation in inflows to the construction services and telecommunication services compared to May 2023. Total services sector inflows (excluding earnings from tourism) were estimated at $ 306 million in May 2024 in comparison to $ 265 million in May 2023.
The major outflows from the services sector in May 2024 were recorded mainly in relation to overseas travel, air transport, sea transport, manufacturing services, and Computer & IT/BPO related services. Total services sector outflows were estimated at $2 30 million in May 2024, in comparison to $ 196 million in May 2023.
Workers’ remittances in May 2024 remained at levels similar to April 2024 at $ 544 million.
Foreign investments in the Government securities market recorded a net outflow of $ 46 million in May 2024, resulting in a cumulative net outflow of $ 159 million during January-May 2024. Meanwhile, foreign flows to the CSE, including both primary and secondary market transactions, recorded a marginal net outflow in May 2024 despite a cumulative net inflow of $ 23 million during January-May 2024. This cumulative net inflow was a combined result of net inflows of $ 48 million to the primary market and a net outflow of $ 25 million to the secondary market during Jan-May 2024.
Gross Official Reserves stood at $ 5.4 billion at end May 2024, recording an increase of around $ 1 billion from end 2023. This included the swap facility from the People’s Bank of China (PBOC) equivalent to around $ 1.5 billion, which is subject to conditionalities on usability. The increase in the GOR since the end 2023 was mainly due to the substantial net purchases of foreign exchange from the domestic foreign exchange market by the Central Bank. Net purchases by the Central Bank in May 2024 amounted to $ 193 million (based on trade date), while the net purchases during the first five months of 2024 amounted to $ 1.8 billion. However, there were notable debt servicing outflows by the Government and the Central Bank, resulting in marginal reduction in GOR at end May 2024, compared to April 2024. Import coverage of GOR (including the PBOC swap) amounted to 3.8 months of imports as at end May 2024.
Rupee depreciates in June though up YTD
The Sri Lanka rupee recorded a depreciation during June 2024 despite the overall appreciation so far in 2024. The Sri Lanka rupee appreciated by 6.0% against the US dollar during the year up to 28 June 2024. However, the rupee depreciated by 1.7% and 1.2% in May and June 2024, respectively. Meanwhile, reflecting cross-currency movements, the Sri Lanka rupee appreciated against other major currencies, such as the euro, the pound sterling, the Chinese yuan, the Japanese yen, the Indian rupee, and the Australian dollar during the year up to 28 June 2024. In line with the nominal appreciation so far during the year up to May 2024, the real effective exchange rate against the basket of 24 currencies (REER 24) has also appreciated. Accordingly, REER 24 index has increased from 70.2 as at end December 2023 to 75.5 as at end May 2024, reflecting a reduction in external competitiveness so far in 2024.
