2012 starts with near $ 1 b trade deficit

The country’s external trade in the new year began with a near $ 1 billion deficit owing to a mixed performance with exports subdued and imports high, though moderating.

Exports in January was down by $ 5 million or 0.6% to $ 918 million in comparison to a year earlier whilst imports grew by 20% to $ 1.88 billion triggering a deficit of $ 965.5 million, up by 50% as per data released by the Central Bank.

It attributed the marginal dip of exports to the decline in earnings from agricultural exports and higher base in January 2011. Agriculture exports saw a dip of 14% to $ 181.5 million, of which tea exports saw a 20% plunge to $ 104 million.

Commendably, textile and garments exports had managed to grow by 1.6% to $ 366.6 million whilst overall industrial exports which contribute about 80% to the total exports improved by 3.3% to $ 732.6 million.

It was the first year-on-year dip in exports since October last year. Whilst the Export Development Board said the dip was marginal and awaiting February data to make a proper assessment, other analysts expressed concern that January could signal the depressing times for exports.



The EDB is targeting an export performance of $ 13 billion whilst the Treasury Secretary Dr. P.B. Jayasundera last week said the forecast was $ 12 billion, up from $ 10.5 billion in 2010.

The rise in trade deficit driven by high imports remains a concern though the Government forecasts both to moderate in the next few months. Central Bank said growth in imports decelerated to 20.1% in January 2012 compared to year-on-year increases of 78.5% and 31.3% recorded in November and December of 2011.

The $ 10 billion trade deficit last year was the key reason among others why the Government opted to devalue the rupee from mid-November and more sharply in February this year.

Detailing exports performance in January, the Central Bank said exports of petroleum products grew by 106.2% to $45 million mainly due to increased bunkering exports. Earnings from rubber based products increased by 20.7% due to the increased demand from major export destinations, particularly from USA.

Export earnings from gems, diamonds and jewellery increased by 44.6% and earning from machinery and equipment increased by 28% in January 2012 compared with the corresponding month of 2011. Among industrial exports, earnings from transport equipment, food, beverages and tobacco, printing and leather products, travel goods and footwear, which contributed to about 11% of total exports, declined by 32.1% in January 2012.

Earnings from agricultural exports declined in January 2012, as a result of lower performance recorded in traditional agricultural exports of tea and rubber. Earnings from tea exports declined by 19.1%, year-on-year, to $ 104 million mainly due to geopolitical uncertainties in major tea importing destinations.

Rubber exports declined as the demand from local rubber manufacturing industries remained elevated. Apart from traditional agricultural exports, exports of spices, vegetables and minor agricultural exports also recorded declines in January 2012.

However, coconut exports increased in January 2012 mainly due to higher production resulting from favourable weather conditions and the fertiliser subsidy scheme of the government. Agricultural exports of unmanufactured tobacco and seafood also performed well in January 2012. Earnings from seafood exports were propelled by increased exports of frozen fish and crustaceans.

With regard to imports, Central Bank said the deceleration in expenditure on imports was mainly driven by mineral products and diamonds and precious stones in the intermediate goods category and vehicle imports in the consumer goods category.

Nevertheless, reflecting the continuous expansion in economic activities, investment goods imports grew by 72.4% in January 2012. All the three major categories of investment goods; transport equipment, building materials and machinery and equipment recorded healthy growth of 100.3%, 71.1% and 60.2%, respectively.

Meanwhile, expenditure on intermediate goods increased by 8.6% to $ 1,065 million, mainly due to higher petroleum imports. Expenditure on petroleum imports increased by 18.9% to $484 million in January 2012 compared to that of January 2011, reflecting a substantial increase in prices. The average price of crude oil imports increased by 21.3% to $ 115.62 per barrel in January 2012 from $ 95.33 per barrel in January 2011.

Higher petroleum prices in the international market were due to rising geopolitical tensions in number of oil producing countries and higher demand emanating from extremely cold weather in Europe. Expenditure on fertiliser imports also increased owing to both higher prices and increased volume of imports. Within intermediate goods, base metals, diamond and precious stones, vehicle and machinery parts, food preparations and wheat and maize imports declined in January 2012.

Expenditure on imports of consumer goods increased marginally by 3% in January 2012 led by non-food consumer goods, particularly, clothing and accessories, home appliances and medical and pharmaceuticals. Import expenditure on food and beverages declined with the lower prices of major imported food items such as sugar, lentils, onions and potatoes in the international market.

Increased duty rates and the introduction of Special Commodity Levy (SCL) on new categories of food and beverages in Budget 2012 also contributed to reduce the expenditure on food imports.