Home / TOP STORY/ Policy tightening slows 1Q deficit by 2.4%

Policy tightening slows 1Q deficit by 2.4%

Comments / {{hitsCtrl.values.hits}} Views / Tuesday, 2 August 2016 01:14


  • Imports drop reduces trade deficit to $ 2.6 b, April also contracts marginally by 2.6% to $ 754 m 
  • Exports contract by 0.9% on lower agriculture, garments increase 3.1% 
  • Vehicle imports drop 28.8% in April, but total expenditure in 1Q rises 3.6% to $ 6 b

Reflecting monetary tightening by the Central Bank, Sri Lanka’s trade deficit contracted marginally in April by 2.9%, on a year-on-year basis to $ 754 million due to the steeper reduction in imports with the first quarter also shrinking by 2.4% to $ 2.6 billion from a year ago.

Latest data by the Central Bank showed yesterday showed earnings from exports in April 2016 stood at $ 707 million, indicating a marginal decline of 0.9%, year-on-year, attributable to lower agricultural exports, despite higher earnings from industrial exports. 

Earnings from industrial exports, which account for 77% of total exports, increased by 3.1% compared to April 2015, mainly due to the improved performance of textiles and Economic Research Department garments exports, the Central Bank said in its monthly External Sector Performance report.   Earnings from textiles and garments exports increased by 3.1%, year-on-year, to $ 340 million during the month, reflecting increases in garment exports to the EU and US markets by 3.7% and 3.1%, respectively. 

Furthermore, export earnings from food, beverages and tobacco, base metals and articles, and leather, travel goods and footwear, catogorised under industrial products, also increased significantly in April 2016. 



“However, a 12.4% year-on-year reduction recorded in agricultural exports, led by tea and spices, weighed down on the overall export performance in April 2016. The decline in tea exports is attributed to the lower export volumes and prices compared to April 2015 amidst subdued global demand and higher supply of black tea from other countries,” the report said.  

Continuing the declining trend observed from the latter part of 2015, export earnings from spices decreased significantly by 30 per cent in April 2016, year-on-year, reflecting the poor performance of cloves and pepper exports. Furthermore, export earnings from minor agricultural products and seafood also declined by 32.8% and 18.6%, respectively, during the month.

Exports earnings during the first four months of 2016 contracted by 4.5% year-on-year to $ 3,435 million largely due to a reduction in export earnings from transport equipment and petroleum products. The leading markets for merchandise exports of Sri Lanka during the first four months of 2016 were the US, UK, India, Germany and Italy accounting for about 54% of the total exports.

The expenditure on imports decreased by 2% to $ 1,461 million, in April 2016 compared to the same month in 2015, due to the decline recorded in expenditure on consumer goods, particularly vehicles and rice imports. 

Reflecting  the impact of the policy measures adopted by the Government to curtail vehicle imports, expenditure on personal motor vehicle imports decreased by 28.8%, year-on-year, in April 2016. Expenditure on rice imports declined for the 12th consecutive month to US dollars 1.2 million in April 2016 reflecting a 94.7% decrease, year-on-year, due to the availability of rice in the local market from the bumper paddy harvest in 2015 and the impact of the increases in the import duty by the Government on the import of rice. 



Furthermore, the lower expenses incurred on transport equipment, base metals, fertiliser, vegetables and fuel imports contributed largely to the decline in import expenditure during the month.

 However, import expenditure on wheat and maize increased considerably in April 2016 due to the importation of wheat by Prima Ceylon Ltd., the main wheat importer in Sri Lanka, after a lapse of three months. 

Meanwhile, import expenditure on machinery and equipment and building materials increased by 12.2% and 22.3%, respectively on a year-on-year basis in April 2016. Further, import expenditure on textile and textile articles, and diamonds and precious stones and metals increased during the month.

On a cumulative basis, expenditure on imports during the period from January to April 2016 decreased by 3.6% to $ 6,055 million, mainly due to the declines recorded in the importation of fuel, transport equipment and rice. During the first four months of 2016, China, India, Japan, Singapore and the UAE accounted for about 57% of the total imports.

FDI inflow, inclusive of foreign loans to BOI companies, amounted to $ 164.5 million during the first quarter of 2016 in comparison to $ 346.4 million recorded during the corresponding period of 2015. Meanwhile, the Colombo Stock Exchange (CSE) recorded a net outflow of $ 19.5 million up to end April 2016, which consisted of net outflows of $ 20.8 million from the secondary market and inflows of $ 1.3 million to the primary market. 



The Government securities market recorded a net outflow of $ 565.2 million during the first four months of 2016 compared to a net inflow of $ 25.7 million during the corresponding period of 2015. Long-term loans to the Government recorded a net outflow of $ 67.5 million during the first four months of 2016, compared to a net inflow of $ 57.0 million during the corresponding period of 2015.

During the first four months of 2016, the overall BOP is estimated to have recorded a deficit of $ 958 million in comparison to a deficit of $ 1,025.2 million recorded during the corresponding period of 2015.

International Reserves and Exchange Rate Movements Sri Lanka’s gross official reserves as at end April 2016 amounted to $ 6.1 billion, equivalent to 3.9 months of imports, while total foreign assets amounted to $ 8.3 billion, equivalent to 5.3 months of imports. 

The rupee recorded a modest depreciation of 1.2% against the US dollar during the period from end 2015 to 29 July 2016. Furthermore, reflecting the cross currency movements, the rupee also depreciated against the euro by 2.6%, the Japanese yen by 14.6%, the Canadian dollar by 6.3%, the Australian dollar by 4.3% and the Indian rupee by 0.2% during this period while appreciating against the pound sterling by 11.1%


Remittances dip in April

Receipts from workers’ remittances declined by 1.4% to $ 578 million in April 2016 in comparison to a year earlier.

Inflows from workers’ remittances at $2,371.4 million during the first four months of 2016 recorded an increase of 4.7% over the corresponding period of 2015.



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