Trade deficit declines on stronger exports

• Apparel leads the way with 25% growth, expectations to meet $ 5b target well before 2015
• Exports in June 2014 grew by 22% to $ 986 million, imports declined by 4.6%
• Industrial exports led at 64% followed by agricultural exports at 36%

Sri Lanka’s trade deficit contracted by 20.1% in June, as a result of a strong 16.8% growth in export earnings, propped up by strong performance from apparel and a 1.2% decline in import expenditure during the first half of 2014, the Central Bank said yesterday.
On a year-on-year basis, earnings from exports in June 2014 grew by 22% to $ 986 million, while expenditure on imports declined by 4.6% to $ 1,439 million. Accordingly, the trade deficit contracted for the ninth consecutive month in June 2014, by 35.3% to $ 454 million.
Expansion in all major export categories contributed to the growth in exports in June2014. Industrial exports, which were the major contributor to export earnings at 64%, led the growth in overall exports, followed by agricultural exports at 36%.
Earnings from industrial exports grew by 18.7%, year-on-year, to $ 725 million in June 2014, mainly due to favourable performance in major export categories such as textiles and garments, rubber products and leather products.
Textiles and garment exports which account for 45.3% of total exports grew by 25%, year-on-year, to $ 446 million in June 2014 contributing more than 50% to the overall growth in exports in June 2014. The significant increase in exports to both traditional markets such as the European Union (EU) which grew by 34.6% and USA which grew by 12.1% and non traditional markets which grew by 44.5% contributed to this growth.
“The rapid growth in the apparel industry indicates the ability of the industry to achieve the target for exports of $ 5 billion well before 2016. Strategies such as backward integration and promotion of new Sri Lankan brands in the international market have helped the industry to grow rapidly,” the Central Bank observed in the statement.
Export of rubber products which is the second major contributor to industrial exports grew by 11.1% to $ 77 million in June 2014 mainly due to an increase in export of rubber tyres. Although the continued decline in the international price of raw rubber has had a negative effect on raw rubber exports, the Central Bank noted this has benefitted domestic manufacturers of rubber products and encouraged value added rubber exports. Further, export of leather, travel goods and footwear has more than doubled during the month.
“Agricultural exports recorded a healthy performance growing by around 33%, year-on-year, to $ 256 million in June 2014. Earnings from tea exports grew by 31.5% to $ 153 million in June 2014, the combined outcome of a 23.5% increase in tea export volumes and a 6.5% increase in the average export price of tea.”
Expenditure on imports declined by 4.6% to $ 1,439 million in June 2014, mainly due to a decline in expenditure on intermediate goods imports. On a cumulative basis, expenditure on imports declined marginally by 1.2% during the first six months of 2014 compared to the corresponding period of 2013. Expenditure on intermediate goods imports declined by 7.5%, year-on-year, to $ 891 million in June 2014 mainly due to the significant decline in imports of petroleum, wheat and maize, gold and fertiliser.
Further, fertiliser imports declined by 54.5%, year-on-year, to $ 14 million in June 2014, mainly due to low demand for fertiliser as a result of the drought weather conditions prevailing in the country.
Expenditure on investment good imports was $ 270 million in June 2014, the same level recorded in June 2013. Import of investment goods increased only marginally due to the build-up of inventories in the recent past and the completion of several mega construction projects.

 

Foreign inflows up from tourism and remittances

Earnings from Sri Lanka’s lucrative tourism industry jumped 33.9% in the first seven months of the year to $ 1.24 billion while, remittances rose by 10.8% to $ 585.1 million, latest data from the Central Bank said on Thursday.
China remains the third highest source of tourists to the island which saw overall tourist arrivals recorded a growth of 24.7% to 861,324 by end July. During last month earnings from tourism were estimated to have increased by 34.4% to $ 193.6 million in July 2014, compared to $ 144 million in July 2013.
In June 2014, workers’ remittances rose by 10.8% to $ 585.1 million from $ 528.2 million in June 2013. Accordingly, cumulative inflows of workers’ remittances up to June 2014 recorded a growth of 10.6% to $ 3,360 million from $ 3,039 million in the corresponding period of 2013.
By end June 2014, net inflows to the Government securities market amounted to $ 196.5 million, comprising net inflows to Treasury bills and Treasury bonds amounting to $ 54.4 million and $ 142.1 million, respectively.
Meanwhile, inflows to the Government on account of long term loans up to June 2014 were $ 962 million compared to $ 951 million during the corresponding period of 2013. Foreign investments in the Colombo Stock Exchange (CSE) recorded a cumulative net inflow of $ 48 million up to June 2014, compared to $ 116.5 million during the corresponding period in 2013.
“However, by 18 August 2014, net foreign investments into the CSE amounted to $ 86 million. Further, inflows to the Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) during the first six months in 2014 amounted to $ 105 million,” the statement went onto say.
The overall BOP is estimated to have recorded a healthy surplus of $ 1,953.6 million during the first half of 2014, compared to a deficit of $ 169.2 million during the corresponding period of 2013.
Sri Lanka’s gross official reserves, including the Asian Clearing Union (ACU) balances, reached a level of $ 9.2 billion by end June 2014, while total foreign assets, which include foreign assets of the banking sector as well, amounted to $ 10.7 billion by end June 2014. In terms of months of imports, gross official reserves were equivalent to 6.1 months of imports by end June 2014, while total foreign assets were equivalent to 7.2 months of imports.
During the year so far the rupee remained steady against the US dollar, marginally appreciating by 0.45%.