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Exports continued their strong run for the third consecutive month in May, notching up 7.8% growth and $ 841 million earnings but had to contend with a widening trade deficit, which expanded to $ 886 million on increased imports of fuel and rice as well as lower tourism and remittance income, Central Bank data said yesterday.
Reserves improved to $ 6.8 billion at the end of May from $ 5 billion during the previous month and prompted the International Monetary Fund (IMF) to release the second tranche of the $ 1.5 billion Extend Fund Facility (EFF) arrangement with Sri Lanka. The reserves were mainly improved due to an international sovereign bond issuance and a syndicated loan facility by the Sri Lankan Government.
“Despite exports increasing for the third consecutive month, the higher increase in import expenditure resulted in a further expansion of the trade deficit. Overall, continuous inflows to the financial account with positive investor sentiments and a gradual rebalancing of the current account is expected to positively impact Sri Lanka’s external sector during the second half of 2017,” the External Report of the Central Bank said.
Export earnings increased by 7.8% to $ 841 million in May 2017 compared to $ 780 million recorded in the corresponding month of the previous year. The largest contribution to this increase was from agricultural exports followed by industrial exports.
Earnings from agricultural exports at $ 223 million increased by 32.0% (year-on-year) in May 2017 due to higher exports of all agricultural goods except coconut kernel products. Export earnings from tea grew by 45.9% (year-on-year) to $ 132 million owing to both higher prices and increased volumes. Reflecting high tea prices in the international market, the average export price of tea increased to $ 5.41 per kg in May 2017 in comparison to $ 4.24 per kg in May 2016. Further, the volume of tea exports increased by 14.3% (year-on-year), reversing the declining trend observed since October 2016.
Earnings from seafood exports increased by 40.5% (year-on-year) to $ 18 million in May 2017 benefitting from the removal of the ban on exports of fisheries products to the EU market. In addition, earnings from the exports of spices registered a 21.9% growth reflecting substantial increases in export volumes of cloves and cinnamon.
Earnings from industrial exports grew by 1.1% (year-on-year) to $ 615 million in May 2017 mainly due to higher exports of petroleum products and rubber products. Reflecting higher export volumes and prices of bunker and aviation fuel, earnings from the export of petroleum products increased significantly by 63.8% (year-on-year) in May 2017. In addition, export earnings from rubber products increased by 17.5% (year-on-year) in May 2017, mainly due to substantial growth in the export of rubber tyres and surgical and other gloves.
Export earnings from base metals and articles also increased by 73.3% (year-on-year), reflecting growth in all subcategories except iron, steel and articles and tools. Further, earnings from wood and paper products and food, beverages and tobacco increased during the month. However, export earnings from textiles and garments declined by 4.1% (year-on-year) to $ 359 million in May 2017, reflecting a decline in garment exports to the US and EU markets. Earnings from gems, diamonds and jewellery and transport equipment also declined during the month.
On a cumulative basis, earnings from exports grew by 4.3% (year-on-year) to $ 4,410 million during the first five months of 2017, as a result of higher income from exports of tea, spices, petroleum products and seafood. However, export earnings from textiles and garments, gems, diamonds and jewellery and food, beverages and tobacco declined during the period under consideration.
Expenditure on imports increased to $ 1,727 million in May 2017, registering an 8.6% (year-on-year) growth, reflecting higher demand for consumer goods and investment goods imports.
Expenditure on consumer goods imports increased by 17.5% (year-on-year) to $ 386 million in May 2017, mainly driven by higher imports of food and beverages particularly sugar and rice. The increasing trend in rice imports observed since January 2017 continued in May 2017 as a result of measures taken by the Government to encourage rice imports to meet the shortage in domestic supply. Accordingly, expenditure on rice imports increased by more than tenfold due to an increase in the import volume to 34 million kg in May 2017 from 4 million kg in May 2016.
Further, import expenditure on sugar increased by 167.6% (year-on-year) to $ 38 million in May 2017 due to the combined outcome of higher import volumes and prices. In addition, expenditure on imports of non-food consumer goods such as telecommunication devices, clothing and accessories, vehicles and medical and pharmaceuticals increased in May 2017.
Import expenditure on investment goods increased by 4.5% (year-on-year) to $ 427 million during May 2017 led by higher imports of transport equipment. Import expenditure on transport equipment increased by 28.3% (year-on-year) mainly due to higher imports of aircraft parts and road vehicles. Further, import expenditure on machinery and equipment increased by 2.2% in May 2017. However, building material imports declined marginally during the same period, owing to lower imports of ceramic products and articles of iron and steel.
Expenditure on the import of intermediate goods increased by 1.6% (year-on-year) to $ 865 million in May 2017, largely due to higher expenditure on fuel imports. Expenditure on fuel imports increased by 15.3% (year-on-year) reflecting increases in average import prices of all fuel categories despite lower import volumes of refined petroleum and coal. The import price of crude oil in May 2017 increased to $ 51.66 per barrel from $ 48.84 per barrel recorded in May 2016. In addition, expenditure on the importation of wheat and maize increased by 73.7% due to a higher volume imported despite a decline in prices.
On a cumulative basis, import expenditure at $ 8,610 million during the first five months of 2017 increased by 12.6% (year-on-year) largely due to higher imports of fuel, rice and gold. Import expenditure on fuel and gold increased by 63% and 102.2% (year-on-year) respectively during the period under consideration while expenditure on rice imports increased substantially by more than twentyfold. However, import expenditure on machinery and equipment, personal vehicles and textiles and textile articles declined during the first five months of 2017.
