* Petroleum bill up 34.3%
The expansion of the trade deficit is slowing down with import growth showing a marked sign of easing in response to recent policy reversals with latest data issued by the Central Bank showing clear signs that the Balance of Payments was recovering. However, export earnings continue to decline which is a worrying trend, latest data released by the Central Bank Monday (11) evening showed.
The trade deficit for the first four months of this year expanded 32.3 percent from a year earlier to US$ 3,319.9 million, slowing down from 44.8 percent recorded during the first quarter of the year. The trade deficit had expanded by nearly 100 percent in 2011.
The import bill grew 11.9 percent for the period January to April 2012 to US$ 6,633.6 million from a year earlier, slowing down from a 17 percent growth rate during the first quarter (January to March 2012).
The petroleum bill increased 34.3 percent during the first four months of this year to US$ 1,791.5 million, easing from a 43.4 percent growth rate during the previous quarter. In 2011, the petroleum bill amounted to Rs. 4,629.6 million, up 53.4 percent from the previous year.
However, the worry is over the 3.1 percent drop in export earnings to US$ 3,313.8 million. The drop is sharper compared with the 1.4 percent decline during the first quarter.
Official reserves which stood at US$ 5,730 million as at end March 2012, grew to US$ 5,835 million as at end April 2012.
Official reserves which stood at US$ 5,806 million as at end January 2012, dipped to US$ 5,522 million by the end of February. Reserves stood at US$ 8.1 billion as end June 2011 and US$ 5,958 million as at end 2011, with the Central Bank selling dollars to keep the rupee strong amidst a widening trade deficit.
The Central Bank sold down reserves to the tune of nearly US$ 3 billion from July 2011 to January 2012 in order to prop up the exchange rate with the trade deficit expanding nearly 100 percent last year with higher than expected credit growth fuelling import demand.
In early February 2012, the Central Bank stopped intervening in the foreign exchange market, has since raised policy interest rates twice while the Treasury raised domestic fuel prices, electricity tariffs and duties on selected imports. Cutting credit growth was crucial to easing the pressure on the balance of payments.
"Tourist arrivals in April 2012 increased by 9 percent to 69,591, with arrivals during the first four months of 2012 amounting to 330,116, reflecting a growth of 18.3 per cent. Earnings from tourism in April 2012 grew at a healthy rate of 15.8 per cent to US$ 72 million compared to the corresponding month of 2011 and by 25.7 per cent during the first four months of 2012 to US$ 340 million. Workers’ remittances amounted to US$ 475 million in April 2012, recording a year-on-year growth of 14.5 percent compared to US$ 415 million in April 2011. Cumulative inflows on account of workers’ remittances amounted to US$ 1,968 million during the first four months of 2012, recording an increase of 16.6 per cent," the Central Bank said, releasing the External Sector Performance April 2012 report yesterday.
"In relation to the Capital and Financial Account of the Balance of Payments (BOP), as per information available so far, inflows of FDI amounted to US$ 313 million by end May 2012. Portfolio investments to the Colombo Stock Exchange (CSE)
also increased significantly to US$ 182 million, on a net basis, by end May 2012. In addition, foreign inflows to commercial banks, both long-term and short-term, increased to US$ 1, 267 million by end May 2012. A significant increase has also been shown in foreign investments in government securities, with net inflows to treasury bills and bonds recording US$ 496 million by end May 2012. Further, net long-term inflows to the government amounted to US$ 176 million during the first quarter of 2012 while more inflows are expected to materialize during the latter part of the year.
"In keeping with the above developments, by end April 2012, gross official reserves amounted to US$ 5,835 million, whereas total international reserves, which include gross official reserves and foreign assets of commercial banks amounted to US$ 7,258 million. In terms of months of imports, gross official reserves and total international reserves by end April 2012 were equivalent to 3.3 months and 4.2 months, respectively," the Central Bank said.
"Responding to the policy measures taken in the first quarter of 2012, expenditure on imports recorded its first full month decline in April 2012. Expenditure on imports recorded a year-on-year decline of 3.3 per cent to US dollars 1,441 million in April 2012, for the first time in 25 months. Earnings from exports recorded a year-on-year decline of 9.2 per cent to US dollars 680 million in April 2012 largely due to lower international market prices for several major export items. The trade deficit for the month of April 2012 grew moderately by 2.6 per cent, year-on-year, to US dollars 761 million, decelerating at a rapid pace for the third consecutive month, and recording the lowest increase in 17 months.
"Expenditure on imports declined in April 2012 driven by reductions in both consumer goods and intermediate goods. Expenditure on consumer good imports declined by 12.9 per cent in April 2012, reflecting a decline in expenditure on most food and non-food consumer good categories. In the food category, import expenditure on vegetables and spices declined significantly. With respect to imports of non-food consumer goods, expenditure on personal motor vehicle imports declined by 20.8 per cent in April 2012 to US dollars 56 million. Expenditure on medical and pharmaceuticals, household and furniture items and home appliances also declined. Rubber products and clothing and accessories grew by 19.7 per cent and 15.2 per cent, respectively in April 2012. The decline in intermediate goods imports in April 2012 was driven by textiles and textile articles (6 per cent decline), on the back of lower cotton prices. Expenditure on chemical products, diamonds and precious stones, fertilizer and wheat and maize also contributed to this decline. Although import volumes of both crude oil and refined petroleum products declined in April 2012, expenditure on petroleum imports increased in April 2012 by 7.5 per cent, reflecting an increase in the average crude oil import price to US dollars 121.21 per barrel from US dollars 119.45 per barrel in April 2011 and higher prices of refined products. Imports of investment goods increased by 19.6 per cent, year-on-year, in April 2012. The higher expenditure was recorded for all three major categories of investment goods, namely, machinery and equipment, transport equipment and building materials.
"Earnings from industrial exports declined by 8.7 per cent to US dollars 520 million in April 2012 led by lower earnings from exports of textiles and garments, mainly reflecting the lower international cotton prices. Exports of petroleum products and food and beverages also declined in April 2012. Industrial exports of animal fodder, rubber products and transport equipment recorded increase in April 2012. Agricultural exports declined by 15.2 per cent to US dollars 150 million, mainly due to lower earnings from tea, rubber and coconut resulting from lower prices in the international market. Earnings from rubber exports were also partly affected by the lower export volumes due to the higher utilization of rubber for manufacturing while the dip in coconut export earnings was particularly due to lower prices despite the higher export volumes. However, earnings from exports of seafood and unmanufactured tobacco increased by 15 per cent and 1.3 per cent, respectively in April 2012. Among the minor agricultural exports, earnings from cocoa and cereals increased in April 2012," the Central Bank said.