Trade deficit shrinks for fifth consecutive month

• Imports dip 10% YOY in May to $ 1.45 b; exports up 17.5% to $ 1 b

The country›s trade deficit shrank for the fifth consecutive month in May aided by declining imports and healthy growth in exports.

The Central Bank said yesterday the trade deficit in May was $ 404 million as against $ 716 million a year ago. The deficit in the first five months of 2022 was $ 3.5 billion, down from $ 3.6 billion in the corresponding period of last year.

Imports in May amounted to $ 1.4 billion, down by 10% YoY and in the first five months grew by 5% to $ 8.8 billion.  Exports grew by 17.5% $ 1.04 billion in May propelling the first five months figure to $ 5.26 billion, up by 12% from the corresponding period of 2021.

“The trade deficit recorded a decline for the fifth consecutive month on month-on-month basis and for the third consecutive month on a year-on-year basis in May 2022, supported mainly by the policy induced moderation of imports, along with the notable growth momentum of exports,” CBSL said.

Terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated notably by 18.5% in May 2022, compared to May 2021, as the increase in import prices surpassed the increase in export prices.

Detailing import performance, CBSL said expenditure on merchandise imports declined to the lowest level since November 2020, recording a decline of 9.7% in May 2022 to $ 1,451 million, compared to $ 1,607 million and $ 1,699 million recorded in May 2021 and April 2022, respectively. A decline in expenditure was observed across all main categories, with the imports of investment goods and non-food consumer goods contributing the most to this decline.

CBSL said the policy measures to curtail import expenditure, such as increase in taxes, restricting imports under several payment terms, imposing licensing and margin requirements as well as forex pressures in the banking system resulted in lower imports.

Expenditure on the importation of consumer goods in May 2022 declined by 30.2%, compared to May 2021, contributed mainly by a reduction of 11.4% in food and beverages and of 47.4% in non-food consumer goods. This year-on-year decline in expenditure on food and beverages was mainly due to lower volumes of oils and fats (mainly, coconut oil), vegetables (mainly, masoor dhal, big onions, chickpeas and garlic), seafood (mainly, dried and canned fish), sugar, fruits, spices and dairy products.

However, expenditure on cereals and milling industry products (mainly, rice and wheat flour) and beverages in May 2022 remained high, compared to May 2021. The decline in the imports of non-food consumer goods was driven by telecommunication devices (mainly, mobile telephones), home appliances (mainly, televisions and fans) and medical and pharmaceuticals (mainly, vitamins and vaccines), rubber products (mainly, rubber tyres) and household and furniture items.

Expenditure on the importation of intermediate goods marginally decreased by 0.9% in May 2022, compared to a year ago, mainly driven by a 79.8% decline in the expenditure on base metals (primarily, iron and steel). Further, many types of intermediate goods, including chemical products, plastics and articles thereof, fertiliser, vehicle and machinery parts, mineral products, etc., showed a decline.

However, despite the low importation of crude oil, the expenditure on fuel increased by 39.6% (year-on-year), recording at $ 461 million, as average import unit price of refined petroleum increased despite a decline in volume imported. The average import price of crude oil was $ 109.94 per barrel in May 2022, compared to $ 68.47 per barrel in May 2021. The categories of intermediate goods that recorded an increase include diamonds and precious stones and metals (primarily, industrial diamonds), textile and textile articles (primarily, fabrics) and maize.

Import expenditure on investment goods declined by 22.7% in May 2022, compared to May 2021 resulted from a decline in all subcategories. The decline in the expenditure on machinery and equipment imports led by reduced import expenditure on telecommunication devices, office machines, machinery and equipment parts and medical and laboratory equipment. Expenditure on all types of goods listed under building materials declined, with a notable drop in imports of iron and steel, articles of iron and steel and aluminium articles. Expenditure on importation of transport equipment declined mainly due to lower imports of tankers and bowsers and agricultural tractors.

Import indices: The import volume index declined by 28.8% (year-on-year), while the import unit value index increased by 26.8%, in May 2022, implying that the decline in import expenditure in May 2022 was mainly driven by the volume effect.

Earnings from merchandise exports in May 2022 increased substantially by 17.5% over the corresponding month in 2021, recording at $ 1,047 million. An increase in earnings was observed in industrial exports, while a decline was recorded in agricultural exports and mineral exports. The cumulative export earnings during January-May 2022 increased by 12.2% over the same period in the last year, amounting to $ 5,266 million.

Earnings from the export of industrial goods increased in May 2022 by 24.2%, compared to May 2021. A broad-based increase in earnings among industrial goods has been recorded, with the greatest share for the overall increase mainly being contributed by garments. Export of garments to all major markets (such as the United States, the European Union and the United Kingdom) improved. Further, gems, diamonds and jewellery and petroleum products also contributed to this increase in exports. Earnings from the export of petroleum products improved due to the increase in both average export prices and volumes of bunker fuel exports.

Meanwhile, continuing the lower demand for rubber gloves as a personal protective item due to declining spread of COVID-19 worldwide, a decline in earnings was reported in rubber products. Export earnings from animal fodder and plastics and articles also declined during the month.

Total earnings from the exports of agricultural goods in May 2022 declined by 4.2%, compared to May 2021. This decline was mainly attributed to exports of tea, spices, unmanufactured tobacco and vegetables. Export earnings from tea in May 2022 declined by 14.2% (year-on-year), due to the decline in volume of tea exported. Earning from spices declined by 16.2% in May 2022 due to lower export volumes of spices, except cinnamon. However, the export of subcategories of minor agricultural products (primarily, arecanuts), coconut related products (primarily, fibres and coconut oil), seafood and natural rubber recorded an increase in May 2022, compared to the previous year.

Earnings from mineral exports in May 2022 declined by 58.4%, compared to May 2021, mainly due to a decline in export earnings from titanium ores categorised under ores, slag and ash.

The export volume index and unit value index increased by 13.7% and 3.3%, respectively, (year-on-year), in May 2022, indicating that the increase in export earnings can be mainly attributed to the higher export volumes.