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September exports grew 4.8% to $ 1 billion from $ 954 million a year earlier, despite the COVID-19 impact, assisting the trade deficit to continue its contraction, the Central Bank said yesterday.
Sri Lanka’s external sector recovered further in September 2020, supported by the continued improvement in the trade deficit, a notable increase in workers’ remittances and the resultant stability in the domestic foreign exchange market, the Central Bank said in its latest External Performance report.
The trade deficit improved in September 2020, compared to a year earlier, with a more than expected rebound in merchandise exports and a reduction in merchandise imports during the month. In September 2020, workers’ remittances, recorded the highest year-on-year growth since end 2011.
A deficit of $ 525 million was recorded in the trade account in September 2020, which was significantly lower than the deficit of $ 757 million recorded in September 2019. The improvement in the trade deficit during the month was due to lower level of imports and higher level of exports in September 2020, compared to September 2019.
The cumulative deficit in the trade account from January to September 2020 narrowed by 23% to $ 4,337 million from the deficit of $ 5,612 million recorded in the same period in 2019. Meanwhile, terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated by 1.1% in September 2020, compared to September 2019, due to export prices declining at a higher pace than the decline in import prices.
Exhibiting the resilience of the export sector in the midst of the current global market conditions and its V-shaped recovery since the initial outbreak of the COVID-19 pandemic, earnings from merchandise exports in September 2020 increased, both on a year-on-year basis as well as on a month-on-month basis.
Merchandise exports of $ 1,000 million in September 2020 were higher by 4.8% than the exports of $ 954 million in September 2019. This was also 5.6% higher than the exports of $ 947 million recorded in August 2020. The increase in exports of most agricultural goods and some industrial product categories, which surpassed the decline in other industrial exports and mineral exports, contributed to the overall increase in exports.
Export earnings from agricultural goods increased by 10.4% in September 2020 on a year-on-year basis, led by coconut exports (both kernel and non-kernel), spices (mainly cinnamon), tea, minor agricultural products (mainly betel leaves) and seafood. Increased earnings from tea exports (3.3%) were supported by higher prices (6.3%), as export volumes declined (2.8%).
As a combined effect of weaker performance in some export segments and higher performance in others, overall earnings from the export of industrial goods increased by 3.6% in September 2020 on a year-on-year basis.
The segments that marked a notable increase included Personal Protective Equipment (PPE) products such as plastic clothing, masks and gloves, which are categorised under plastics and articles thereof, other made up textile articles under textiles and garments, and rubber products. The total increase in these three categories surpassed the decline in earnings from garment exports.
Export earnings from food, beverages and tobacco also increased significantly, with exports of most of the value-added food items under this category growing, led by value-added coconut products. Export earnings from rubber products other than gloves, such as tyres, increased as well. Meanwhile, a notable increase in printing industry products was seen due to an increase in the export of currency notes of other countries printed in Sri Lanka.
Industrial export segments that recorded a decline in earnings include garments; gems, diamonds and jewellery; petroleum products; and base metals and articles. Earnings from the export of textiles and garments declined by 3.7% on a year-on-year basis, with exports to the USA reducing and exports to the EU increasing marginally.
Earnings from the export of petroleum products declined with a reduction in prices as well as the lower quantity of bunker fuel supplied. Meanwhile, earnings from mineral exports declined in September 2020, year-on-year.
The export volume index improved by 18.4%, on a year-on-year basis, while the unit value index deteriorated by 11.5%, on a year-on-year basis, in September 2020, indicating that the year-on-year increase in earnings from exports was, on average, driven by higher volumes.
Expenditure on merchandise imports declined by 10.9% to $ 1,525 million in September 2020, compared to September 2019, thus continuing the year-on-year declining trend observed since March 2020. Measures taken by the Government to restrict the importation of selected non-essential goods since March 2020 and lower fuel prices in the international market primarily caused this decline.
However, import expenditure in September 2020 was higher than import expenditure recorded in each month since March 2020, and the increase over August 2020 was 18.3%. This was mainly due to the increase in the importation of machinery and equipment in September 2020.
Expenditure on the importation of consumer goods in September 2020 was lower by 14.8% compared to September 2019 mainly owing to the decline in import of vehicles for personal use, clothing and accessories and other items restricted by the Government.
However, expenditure on food and beverages was substantially higher mainly due to greater imports of sugar, milk powder and coconut oil. Import volumes of sugar and milk powder significantly increased. Whereas import prices of sugar were somewhat higher in September 2020 than in September 2019, import prices of whole milk powder were lower in line with prices in the global market.
Imports of non-food consumer goods that are not under import restrictions or are under less stringent restrictions, such as pharmaceuticals (mainly medicaments), telecommunication devices (mainly mobile phones), home appliances, such as refrigerators and rice cookers, and toiletries, increased. On the other hand, import expenditure on other food items, such as vegetables, fruits, spices and beverages, declined in September 2020, compared to September 2019.
Expenditure on the importation of intermediate goods declined by 11.7% in September 2020, compared to September 2019, mainly owing to the 39.5% decline in expenditure on fuel imports, which in turn was an outcome of low petroleum prices prevailing in the global market as well as lower volumes imported.
The average import price of crude oil in September 2020 was $44.05 per barrel in comparison to $67.73 per barrel in September 2019. Other intermediate goods that contributed to reduce the overall import expenditure were textiles and textile articles, fertiliser, diamonds and unmanufactured tobacco. However, import expenditure on base metals (mainly iron and steel), wheat, plastic and articles in primary form and chemical products increased.
Two of the subcategories of investment goods, i.e., building material and transport equipment, saw year-on-year declines in import expenditure of 31.6% and 56.3%, respectively, with items under building material such as iron and steel and articles thereof; cement; ceramic products; aluminium articles; insulated wires and cables, and items under transport equipment such as buses, auto-trishaws, other commercial vehicles and railway equipment, showing a marked decline, mainly owing to import restrictions. The import of tractors, which is not restricted, increased.
The other subcategory of investment goods, namely, machinery and equipment, increased in September 2020 significantly, compared to September 2019 as well as monthly imports from February to August 2020, mainly due to the increase in import of cranes and parts for machinery and equipment.
In addition, most other items with small import shares, such as electronic and electric machinery and equipment, medical laboratory equipment, office machines and air conditioning machines also increased.
The import volume index and the unit value index declined by 0.4% and 10.5%, respectively, on a year-on-year basis in September 2020, indicating that the decrease in import expenditure was caused both by lower volumes and lower prices.
