Trade deficit down in July

The external sector performance improved in July 2015, year-on-year, with a lower trade deficit and strong tourist earnings.

The increase in the cumulative trade deficit in July was 6 per cent, down from 15.6 per cent recorded in June this year, due to a sharp deceleration in imports during July 2015, the Central Bank said yesterday.

Net inflows to the financial account remained moderate. The decision of the Central Bank to allow greater flexibility in the determination of the exchange rate from September 4, 2015 is expected to help reduce the trade deficit further while improving the country’s gross official reserves, thereby leading to greater external sector stability,the Bank said in its external sector review for July.

Export earnings dropped by 2.6 per cent to US dollars 932 million in July 2015, reflecting a year-on-year decline in both industrial and agricultural exports.

Exports of all sub categories of industrial sector, except transport equipment, petroleum products and animal fodder, declined in July 2015, owing to the weak global demand and reduction in export prices. Among the industrial exports, the earnings from the textiles and garments, which account for more than 44 per cent of the total exports earnings, declined marginally by 0.3 per cent, year-on-year, in July 2015. This was mainly due to the decline in garments exports despite the growth of 34.0 per cent recorded in textiles exports over July 2014.

However, garments exports declined by 1.3 per cent, reflecting a substantial reduction in garments exports to the EU market. Meanwhile, decreases in earnings from export of rubber products, gems, diamonds and jewellery, machinery and equipment mainly contributed for the overall decline in industrial exports. Export earnings from transport equipment, petroleum products and animal fodder increased by 91.3 per cent, 42.2 per cent and 13.0 per cent, respectively, in July 2015.

Earnings from agricultural exports in July 2015 declined by 2.7 per cent, year-on-year, to US dollars 245 million, led by significant declines recorded in tea and sea food exports.

Tea exports, which were severely affected by the lower demand from Russia and Middle East, declined in July 2015 for the 12th consecutive month, recording a drop of 14.0 per cent, year-on-year, reflecting declines in both export volume and export prices.

On a cumulative basis, earnings from exports declined marginally by 0.9 per cent during the first seven months of the year mainly due to the lower performance of agricultural exports despite the positive growth in industrial exports. The leading markets for merchandise exports of Sri Lanka during this period were the USA, the UK, India, Germany, Italy and China which accounted for about 55 per cent of total exports.

Expenditure on imports decreased by 16.9 per cent, year-on-year, to US dollars 1,534 million in July 2015 mainly due to the base effect as July 2014 recorded the highest monthly import value after November 2012.

In addition, reduction in fuel imports bill also contributed for the overall decline in import expenditure. Import expenditure on fuel imports declined by 66.1 per cent, on a year-on-year basis, during the month. The average crude oil import price, which was US dollars 110.3 per barrel in July 2014 had nearly halved to US dollars 60.5 per barrel in July 2015. As a result, expenditure on intermediate goods imports declined by 32.8 per cent, year-on-year, to US dollars 752 million in July 2015. Import expenditure on base metals, fertilisers and textile and textile articles also dropped during the month.

On a cumulative basis, expenditure on imports during the first seven months of 2015 increased by 1.9 per cent, year-on-year, to US dollars 11,035 million mainly led by the imports of consumer goods followed by the imports of investment goods despite the significant drop in expenditure on intermediate goods imports.

Courtesy: Daily News 30 September 2015