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Tuesday, 25 June 2013 09:34 - - {{hitsCtrl.values.hits}}
remittances continued to rise, supported by the diversification of migrant destinations and further expansion of formal channels for remitting money.
Foreign investment at the Colombo Stock Exchange (CSE) continued to grow, along with increased activity at the CSE, indicating a gradual build-up of investor confidence. Commercial banks and the corporate sector were able to raise more foreign capital, given the improvement in the macroeconomic environment and further relaxation of exchange control regulations.
Inflows on account of long-term loans obtained by the Government during the first four months of the year moderated, while substantial inflows were recorded in the government securities market on a cumulative basis.
However, the trade gap widened in April 2013, reflecting increased import demand, although there was a marked contraction in the trade deficit on a cumulative basis during the first four months of the year.
A further improvement of the overall balance of the BOP took place during the four-month period up to April 2013, leading to the strengthening the international reserves position of the country, as a result of additional foreign exchange inflows on account of trade in services, current transfers, and inflows to the financial account.
Trade account of the BOP
In April 2013, expenditure on imports increased while earnings from exports declined on a year-on-year basis. As a result, the deficit in the trade balance for April 2013 increased by 19.2%. Nevertheless, in cumulative terms, the deficit in the trade account recorded a decline of 14.6% by April 2013, reflecting the sharp contraction of expenditure on imports up to March 2013.
Reversing the decreasing trend recorded in the preceding twelve months, expenditure on imports increased by 5.7%, year-on-year, in April 2013. Indicating a strengthening of domestic economic activity, expenditure on imports of all major categories, i.e., consumer goods, intermediate goods and investment goods, recorded year-on-year increases.
The relaxation of the monetary policy stance by the Central Bank, the strengthening of the rupee against several major currencies due to cross currency movements in global foreign exchange markets, as well as the easing of prices of commodities such as gold and other metals in the world market, are likely to have supported the pick-up in imports.
In this regard, although expenditure on fuel imports declined in April 2013, expenditure on imports of intermediate goods such as gold, wheat, chemical products, and base metals including iron and aluminium, increased.
Further, import expenditure on food and beverages led the increase in expenditure on consumer goods, while imports of building materials largely led the increase in expenditure on investment goods imports, reflecting the continued robustness of activity in the construction sector.
Earnings from exports declined by 6.8%, year-on-year, in April 2013, with weak global demand being reflected in earnings from exports of agricultural and industrial goods. Earnings from industrial exports declined in April 2013, with earnings from garments, which account for more than a third of total exports, declining.
The export of other industrial products, namely, processed food, beverages and tobacco; machinery and mechanical appliances; rubber products and animal fodder, also declined. The decline in earnings from agricultural exports was driven largely by the decline in earnings from rubber exports.
Earnings from rubber exports, which declined last year, continued to weaken so far this year, reflecting the impact of the downturn in global economic activity on the rubber industry. However, tea exports, which account for about 15% of total export earnings, increased on the back of favourable prices in the world market.
Tourism earnings of services account of BOP
Earnings from tourism in April 2013 grew at a healthy rate of 22.5%, year-on-year, to $90 million, with cumulative earnings from tourism recording a growth of 19.8% over the first four months of 2012, to $407.2 million.
This was the result of tourist arrivals increasing by 14.7%, year-on-year, to 79,829, in April 2013, thus raising total tourist arrivals during the first four months of 2013 to 368,627. Tourist arrivals in the first four months of 2013 recorded a commendable growth of 11.7%, year-on-year.
Current transfers in the BOP
Workers’ remittances amounted to $550 million in April 2013, compared to $475 million in April 2012, an increase of 15.7%, year-on-year. As a result, the cumulative inflows on account of workers’ remittances amounted to $2,109 million during the first four months of 2013, thus recording an increase of 6.4% over the corresponding period of 2012.
International reserve position
In line with the above developments, by end April 2013, gross official reserves amounted to $6,858 million, while total international reserves, which comprise gross official reserves and foreign assets of commercial banks, amounted to $8,508 million.
In terms of months of imports, gross official reserves were equivalent to 4.4 months of imports by end April 2013, while total reserves were equivalent to 5.3 months of imports.
Exchange rate behaviour
The Sri Lankan Rupee has gained value against several major currencies during the year so far, based on cross currency exchange rate movements. During the period from end 2012 through 20 June 2013, the rupee appreciated against the pound sterling by 3.6%, the Japanese yen by 11.3%, the Indian rupee by 6.5%, the Australian dollar by 11.1%, and the Korean won by 6.2%, among others.
However, the rupee which stabilised firmly against the US dollar throughout the year, showed a transitory depreciation recently, owing to some speculative activity by market participants. Accordingly, the rupee fell by 0.9% against the US dollar and by 0.5% against the euro as at 20 June 2013, compared to end 2012.
