Tuesday, 15 July 2014 00:01
Country records trade deficit contraction for 8th consecutive month
The Central Bank said yesterday that the trade deficit continued to improve in May 2014, strengthening the performance in the external sector.
It said earnings from exports increased, while expenditure on imports reduced, driven mainly by the reduction in fuel imports.
On a year-on-year basis, earnings from exports in May 2014 increased by 11.1% to $882 million, while expenditure on imports declined by 17.6% to $1,275 million. Accordingly, the trade deficit contracted for the eighth consecutive month in May 2014, by 47.9% to $393 million.
The cumulative trade deficit for the first five months of 2014 contracted by 19.3%, as a result of a 15.7% growth in export earnings and a 1.5% decline in import expenditure.
Expansion in all major export categories contributed to the growth in exports in May 2014. However, the largest contribution to the overall growth came from industrial exports followed by agricultural exports.
Earnings from industrial exports grew by 7.7%, year-on-year, to $639 million, reflecting positive performance in almost all sub categories.
As the leading driver of growth in industrial exports, textiles and garment exports grew by 14.5%, year-on-year, to $365 million in May 2014, as a result of significant increases in exports to both traditional and non-traditional markets. Sri Lanka’s apparel industry has been increasing its value addition through strategies such as backward integration, establishment of brands and improved reputation as a quality and timely apparel supplier.
Rubber product exports also increased by 14.6% to $78 million mainly due to an increase in export of rubber tyres, the main rubber product of Sri Lanka. Raw rubber prices fell to a five-year low in May 2014 benefitting manufacturers of rubber products.
Earnings from export of machinery and mechanical appliances, food beverages and tobacco and leather products also contributed to the growth in industrial product exports. Meanwhile, earnings from transport equipment and petroleum products declined by 77.6% and 40.0%, respectively mainly due to the high base in the previous period.
Earnings from agricultural exports rose by 21.2%, year-on-year, to $240 million in May 2014 with significant contributions from tea and coconut. Earnings from export of coconut increased sharply by 91.3% to $30 million led by kernel product exports. The favourable developments in coconut exports during 2014 reflect the impact of favourable weather conditions in the previous year on coconut production.
Earnings from tea exports recorded a healthy growth of 9.7% to $141 million in May 2014. This was a combined outcome of 5.5% increase in tea export volumes and a 4.0% increase in the average export price of tea. However, the average export price of tea declined continuously during the first five months of 2014 from the highest price recorded in January 2014.
Export earnings from minor agricultural products and seafood also contributed significantly to the growth in agricultural exports. However, in May 2014, earnings from rubber exports contracted by 21.0% compared to May 2013, due to the continuous decline in export volumes and prices, owing to low demand from major rubber consumers and increased production from new plantations in Vietnam, Thailand and Indonesia.
Expenditure on imports declined by 17.6% to $1,275 million in May 2014, due to the significant decline in expenditure on imports of intermediate and investment goods. Expenditure on imports of intermediate goods declined by 21.0%, year-on-year, to $717 million in May 2014 mainly due to the significant declines in importation of crude oil, diamonds and gold.
Negligible imports of gold in May contributed to the decline in import of gold, precious stones and metals by 87.0% to $13.2 million in May 2014. Expenditure on fuel imports showed a temporary decline of 35.4% in May 2014, mainly due to the delay in unloading crude oil imports during the month due to maintenance activities in oil pipelines. Import expenditure on wheat and unmanufactured tobacco also declined by 42.8% and 75.8%, respectively, contributing to the decline in intermediate goods imports.
However, import expenditure on textiles and textile articles, fertilisers and paper and paperboard articles grew during the month under review. Imports of textile and textile articles, grew by 11.2%, year-on-year, indicating higher export orders for apparel products in the coming months. Further, fertiliser imports increased by 36.7%, year-on-year, to $32 million in May 2014, mainly due to the increased usage of fertiliser for paddy and other crops during the Yala season and upcoming Maha season.
Expenditure on imports of investment goods declined by 25.2%, to $280 million in May 2014 due to declines in imports of all major categories of investment goods, reflecting the build-up of inventory stocks in the recent past.
Expenditure on machinery and equipment imports declined by 34.4%, due to the decline in almost all categories of machinery and equipment except textile industry machinery, audio and video related apparatus and hand and machinery tools.
Import expenditure on building materials declined by 8.7% mainly due to lower imports of iron steel and cement. Transport equipment declined by 20.5% due to a reduction in imports of almost all sub categories except buses and parts of aircrafts.
Meanwhile, expenditure on consumer goods imports recorded a 4.2% growth, year-on-year, to $278 million in May 2014 recording increases in both food and non-food consumer goods categories. With respect to food imports, expenditure on cereals and milling industry products increased significantly, mainly due to a substantial increase in rice imports.
However, import expenditure on vegetables, oils and fat, seafood and fruits declined in May 2014. Imports of non-food consumer goods, increased marginally by 0.4%, mainly due to a 41.4% increase in import of clothing and accessories and a 10.3% increase in import of personal motor vehicles. However, import of home appliances and medical and pharmaceuticals declined in May 2014.