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Sri Lanka’s exports have got off to a positive start in 2019, recording healthy growth and topping the $ 1 billion mark, whilst regulatory measures checked imports, leading to a lower trade deficit in January.
The Central Bank yesterday said the deficit in the trade account contracted significantly in January 2019 compared to January 2018, as a result of increased export earnings and a significant reduction in imports, mainly reflecting the impact of policy measures implemented to discourage vehicle and non-essential consumer goods imports.
Terms of trade deteriorated by 1.7% year-on-year to 107.8 index points in January 2019, due to the decline in export prices at a higher rate than the decline in import prices. Low agricultural and industrial export prices contributed to the decline in the overall export price index, while import prices of intermediate and investment goods contributed to the decline in the import price index. However, terms of trade improved in January 2019, in comparison to the previous month.
In January 2019, earnings from merchandise exports surpassed $ 1 billion for the second consecutive month.
Considering the historical pattern of relatively low level of exports being recorded during the month of January, reaching over $ 1 billion in export earnings in January 2019 is noteworthy. Accordingly, export earnings increased by 7.5% to $ 1.038 billion in January, driven by increased exports from all major sectors.
Industrial exports mainly contributed to the growth of export earnings, driven by textiles and garments, rubber products, machinery and mechanical appliances and food, beverages and tobacco. Textiles and garment exports increased as a result of high demand for garments from the EU and the USA, as well as non-traditional markets such as India, Japan, Australia, China, and Canada. Further, export earnings from rubber products increased during January, owing to the improved performance in all subcategories. Exports earnings from machinery and mechanical appliances also increased with increases in all subcategories, while earnings from food, beverages, and tobacco exports increased, driven by manufactured tobacco. In addition, animal fodder and printing industry products also contributed towards the increase in industrial exports in January.
Export earnings from petroleum products declined significantly for the second consecutive month, due to lower bunkering and aviation fuel exports driven by significantly lower bunkering quantity, reflecting the intense competition faced by Sri Lankan ports from regional ports, mainly in India and Singapore. In addition, export earnings from gems, diamonds, and jewellery products also declined in January.
For the first time since February 2018, earnings from agricultural exports grew on a year-on-year basis in January 2019, mainly due to the growth in coconut, seafood, vegetables, and unmanufactured tobacco exports. Earnings from coconut exports increased due to the rise in export earnings from both kernel and non-kernel products, led by desiccated coconut and coconut fibre, respectively. Export earnings from seafood continued to increase significantly, owing to higher exports to the EU market. However, despite an impressive increase in export volumes of tea, its earnings declined marginally during January, as a result of lower average export prices of tea. Export earnings from spices, minor agricultural products, and rubber declined.
Earnings from mineral exports also increased in January, led by the growth in ores, slag, and ash exports.
The export volume index increased notably by 13.7% in January, while the export unit value index declined by 5.4%, implying that the growth in exports was driven entirely by higher volumes in comparison to January 2018.
Expenditure on merchandise imports declined in January for the third consecutive month by 17.8% to $ 1.65 billion, reflecting the effect of policy measures taken by the Central Bank and the Government. All major import categories, namely intermediate goods, consumer goods, and investment goods, contributed to this decline.
Intermediate goods imports largely contributed to the decline in overall imports, mainly due to lower expenditure incurred on fuel, gold, and fertiliser. Expenditure on fuel imports declined due to lower average import prices, and lower volumes of crude oil and refined petroleum products, despite a higher import volume of coal. Expenditure on gold imports, which declined since May 2018, following the imposition of customs duty on gold, remained at a negligible level in January as well. Expenditure on fertiliser imports also declined significantly, led by lower import volumes in all subcategories, particularly urea.
Expenditure on wheat and maize, base metals and rubber, and articles thereof, contributed notably to the decline in intermediate goods in January. However, import expenditure on textiles and textile articles increased, driven by fabric imports, while mineral products and agricultural inputs also increased.
Import expenditure on consumer goods declined mainly due to lower expenditure on almost all subsectors except beverages and spices imports. Continuing the declining trend observed since November 2018, which reflected the impact of policy measures taken to curtail imports, expenditure on personal motor vehicle imports showed a significant decline. Expenditure on almost all non-food consumer goods imports decreased in January. However, considering the revision of excise duties in the Budget 2019, eased pressure on the exchange rate, and other developments in the external sector, the Central Bank removed the margin deposit requirement on both vehicle and non-essential consumer goods imports against letter of credit, effective from 7 March 2019, and on documents against acceptance terms, effective from 12 March. Expenditure on rice imports continued its declining trend in January, with higher supply in the domestic market. Import expenditure on vegetables and dairy products also declined.
Expenditure on the importation of investment goods also declined in January, due to lower imports of all subcategories classified under investment goods. Lower expenditure on commercial cabs and auto trishaws, categorised under transport equipment, and iron and steel, categorised under building material, mainly led to this decline.
In January, the import volume and unit value indices decreased by 14.6% and 3.7% respectively, indicating that the decline in imports was driven by low volumes, as well as prices of imported goods in comparison to the corresponding period of 2018.
