COLOMBO: The external sector showed a mixed performance with a widened trade deficit and continued inflows in the form of services and workers’ remittances in June 2015. The wider trade deficit on a cumulative basis as at end June 2015 was offset to a greater extent by continued healthy inflows of workers’ remittances and earnings from tourism,the Central Bank said.
Cumulative inflows to the financial account continued to moderate although inflows in June witnessed some improvement. Gross official reserves strengthened to US$ 7.5 billion as at end June 2015 with the receipt of proceeds from the issuance of International Sovereign Bond and Sri Lanka Development Bonds. Expenditure on imports in June 2015 increased by 13.5 per cent, year-on-year, to US dollars 1,633 million according to Central Bank data.
This growth was led by vehicle imports for personal usage categorised under consumer goods, which increased by 110.1 per cent due to higher importation of motor cars and motor cycles, and vehicle imports for business purposes categorised under investment goods, which increased by 238.6 per cent due to higher importation of auto trishaws and other motor vehicles.
Earnings from exports in June 2015 amounted to US$ 944 million, recording a decline of 4.2 per cent, year-on-year. Despite the significant improvement in earnings from exports of transport equipment, petroleum products and spices, lower earnings from tea, textiles and garments, rubber products and seafood exports contributed to this decline.
Export of transport equipment increased significantly due to the export of a cruise ship to India. Export of petroleum products increased owing to a more than two fold growth in bunker fuel volume despite the decline in bunker fuel price by over 50 per cent. Earnings from spice exports increased more than 40 per cent as exports of all categories of spices performed well during the month. However, this positive expansion in exports was outweighed by the subdued performance of other main export categories. Tea exports continued to decline in June 2015 for the eleventh consecutive month, due to lower demand from main tea buyers such as Russia (a drop of 29 per cent) and the Middle East (a drop of 24 per cent).
Weaker demand for tea in main markets resulted in a decline in export volumes as well as the unit price with the lowest export price of US dollars 4.39 per kg of tea being recorded since September 2012. Earnings from exports of textiles and garments declined reflecting lower exports to EU countries despite the growth in exports to both the USA and non-traditional markets. Export earnings from rubber products declined during the month due to lower performance of the export of rubber tyres, surgical gloves and other rubber products. Seafood exports continued to decline in June 2015 consequent to the ban on exports of fisheries products to the EU from Sri Lanka. Accordingly, in June 2015, seafood exports to EU declined by 72 per cent, year-on-year, while such exports to other markets increased by 18 per cent, year-on-year.
On a cumulative basis, earnings from exports declined marginally by 0.6 per cent during the first six months of the year mainly due to a lower performance of agricultural exports despite the growth in industrial exports.
The leading markets for merchandise exports of Sri Lanka during the first six months of 2015 were the USA, the UK, India, Germany, Italy and China which accounted for about 55 per cent of total exports.
Import expenditure on textiles and textile articles increased reflecting potential higher export demand in coming months and increased local demand for garments.
Meanwhile, import expenditure on fuel declined by 41.3 per cent, year-on-year, to US dollars 242 million in June 2015, reflecting a 70.3 per cent decline in expenditure on crude oil and a 23.6 per cent drop in expenditure on refined petroleum products. Lower expenditure on fuel imports was mainly due to the significant decline in oil prices in international markets.
Meanwhile, import expenditure on sugar declined by 54.7 per cent mainly due to the decrease in the import price of sugar coupled with a lower import volume. Mineral product imports and rice imports also declined during the month.
Rice imports, which recorded a significant growth since April 2014, contracted by 75.8 per cent in June after the introduction of import duty and other taxes in place of the Special Commodity Levy (SCL) with effect from 6 May 2015 and the increase in domestic rice production. On a cumulative basis, the trade deficit during the first six months of 2015 increased by 15.6 per cent to US$ 4,086 million. However, the deficit in the trade account in June 2015 widened substantially by 51.9 per cent to US$ 689 million, year.
On a cumulative basis, expenditure on imports during the first six months of 2015 increased by 5.7 per cent, year-on-year, to US dollars 9,501 million mainly led by the import of consumer goods followed by the import of investment goods.
During the first six months of 2015, the main import origination countries were India, China, Japan, UAE and Singapore, which accounted for about 60 per cent of total imports.
