Friday Jan 24, 2025
Friday Jan 24, 2025
Monday, 2 December 2024 03:33 - - {{hitsCtrl.values.hits}}
The external sector continued its growth trajectory in October 2024, driven by strong inflows to the current account, resulting in an increase in foreign reserves and an appreciation of the rupee, the Central Bank reported.
In its latest external sector report, the CBSL highlighted a 24% year-on-year (YoY) growth in exports for October 2024, surpassing the $ 1 billion threshold, while the trade deficit during the month narrowed boosted by the robust growth in exports.
The CBSL also pointed to the continuous investor confidence, the financial account of the Balance of Payments (BOP) continued to strengthen during the month with higher foreign inflows to the Colombo Stock Exchange (CSE) and the Government securities market in October. Subsequently, the overall balance recorded a surplus of $ 2.8 billion by end October 2024.
The deficit in the merchandise trade account narrowed to $ 544 million in October 2024 from $ 683 million recorded in October 2023, reflecting the positive impact of higher export earnings. However, the cumulative deficit in the trade account during January to October 2024 widened to $ 4,745 million from $ 4,024 million recorded over the same period in 2023.
Earnings from merchandise exports increased to $ 1,158 million in October 2024. This growth was primarily driven by industrial and agricultural exports.
The increase in industrial goods exports in October 2024 (YoY) was broad-based, with notable contributions from garments and petroleum products. However, declines were recorded in the categories of gems, diamonds and jewellery, as well as machinery and mechanical appliances. Earnings from exports of agricultural goods increased primarily due to higher volumes and prices of tea, along with increased exports of spices and coconut-based products. Meanwhile, earnings from mineral exports declined in the same period.
Expenditure on merchandise imports recorded an increase of 5.7% YoY to $ 1,702 million in October 2024. This increase was driven by higher spending on investment and consumer goods, while imports of intermediate goods declined.
Consumer goods imports increased by 10.8% YoY to $ 291.9 million in October 2024 compared to a year earlier, resulting in higher spending on both food (primarily edible oils) and non-food (primarily home appliances) consumer goods. However, expenditure on intermediate goods imports declined by 0.6% YoY to $ 1,079.2 million primarily due to reduced fuel imports which stood at 1.9% YoY to $ 337.3 million, as both the prices and volumes of refined petroleum and crude oil were lower compared to October 2023.
Expenditure on investment goods recorded an increase of 27.5% YoY to $ 330.4 million, driven by higher imports of machinery and equipment (mainly cranes and electric motors and generating sets).
Terms of trade, i.e., the ratio of the price of exports to the price of imports, improved by 1.8% in October 2024 compared to October 2023, as the decline in the prices of imports surpassed the decline in the prices of exports.
The export volume index improved by 31.7%, while the unit value index declined by 5.3%, implying that the increase in export earnings in October 2024 compared to October 2023 can be attributed to higher export volumes.
Similarly, the import volume index increased by 13.6%, while the unit value index declined by 6.9%, implying that the increase in import expenditure in October 2024 compared to October 2023 was driven by the volume effect.
In terms of the services sector, total inflows excluding earnings from tourism, were estimated at $ 320 million in October 2024 in comparison to $ 308 million in October 2023. Sea transport services and computer & IT/BPO related services were the main contributors to the inflows in October 2024.
Total services sector outflows were estimated at $ 284 million in October 2024, in comparison to $ 171 million in October 2023. Major contributors to the recorded outflows from the services sector in October 2024 were overseas travel and sea transport.
Foreign investments in the Government securities market recorded a net inflow of $ 39 million in October 2024. This was the first time the Government securities market recorded a net monthly inflow in 2024. However, cumulative foreign investments in the Government securities market recorded a net outflow of $ 218 million during January-October 2024. Meanwhile, foreign flows to the CSE, including both primary and secondary market transactions, recorded a net inflow of $ 3 million in October 2024 and a cumulative net inflow of $ 46 million during January-October 2024.
Gross Official Reserves (GOR) recorded a notable increase from $ 6 billion at end September 2024 to $ 6.5 billion at end October 2024. GOR includes the swap facility with the People’s Bank of China (PBOC), which is subject to conditionalities on usability. This increase of the GOR was mainly due to the net purchases of foreign exchange from the domestic foreign exchange market by the Central Bank and the funds received from the World Bank and the Asian Development Bank. Overall, the Central Bank purchased $ 190 million, on a net basis (based on trade date), during the month of October 2024. Meanwhile, import coverage of GOR (including the PBOC swap) amounted to 4.2 months of imports as at end October 2024.
The Sri Lanka rupee continued its appreciating trend. The Sri Lanka rupee continued to record a monthly appreciation for the month of November 2024 in line with the overall appreciation observed so far during the year. The Sri Lankan rupee appreciated by 11.3% against the US dollar during the year up to 29 November 2024.
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 29 November 2024. In line with the nominal appreciation of the Sri Lanka rupee during the year up to October 2024, the real effective exchange rate against the basket of 24 currencies (REER 24) also appreciated.
Accordingly, REER 24 index (2017=100) increased from 70.2 at end December 2023 to 74.5 at end
October 2024, reflecting a reduction in external competitiveness during the period.
