The Central Bank last week said the external sector remained stable in February 2015 with exports improving though higher growth in imports saw the widening of the trade deficit.
“Although the deficit in the trade account in February 2015 narrowed compared to the previous month, it expanded at a higher rate compared to February 2014 as growth in imports outweighed the growth in exports,” the Central Bank said.
It also said tourist earnings and worker remittances continued to be the main sources of inflows, improving the current account balance of the Balance of Payments. Inflows to the financial account moderated mainly due to the deceleration in investment activities with the reviewing of major infrastructure projects of the public sector.
Earnings from exports increased by 5.8%, year-on-year, to $ 891 million in February 2015, led by industrial products, particularly textiles and garments. Earnings from industrial exports, which represent about 77% of total exports, improved mainly due to an increase in exports of textiles and garments followed by petroleum products, gems, diamonds and jewellery. Export earnings from textiles and garments, which represent about 47% of total exports, increased by 6% during the month, reflecting improved exports to both traditional and non-traditional markets.
Export earnings from petroleum products increased at a higher rate, reflecting the increase in export quantity of bunker and aviation fuel by 145.0%, despite the reduction in prices by 51.1%. However, export earnings from rubber products declined due to a significant decline in rubber tyre exports despite the increase in exports of surgical and other gloves.
Meanwhile, earnings from agricultural exports recorded a marginal increase during the month, with a significant increase in exports of spices and coconut products amidst the decline in exports of seafood and tea. Spices exports recorded significant growth reflecting substantial performance in pepper and cloves. Income from the export of coconut products increased mainly due to higher prices for coconut products along with the increased level of desiccated coconut and coconut oil exports.
However, seafood exports declined significantly due to restrictions on access to the EU, the main market for Sri Lankan seafood products from mid-January 2015. Tea export earnings continued to decline showing a notable drop in prices. The subdued demand from Russia, the main single export market for Sri Lankan tea, despite the higher demand from other main markets, also contributed to this decline.
Cumulative export earnings during the first two months of 2015 amounted to $ 1,801 million with an increase of 3.1%, while the leading markets for merchandise exports of Sri Lanka were the US, UK, India, Germany and Italy, accounting for about 51% of total exports.
Expenditure on imports increased by 7.7%, year-on-year, to $ 1,530 million in February 2015, reflecting significant increase in consumer goods imports followed by investment goods. In order to meet the higher demand in the festive season, most consumer goods imports, particularly imports of clothing and accessories, vegetables and rice increased during the month.
Furthermore, imports of motor vehicles with lower engine capacity and motorcycles increased considerably during the month, contributing to the growth in motor vehicle imports. The increase in investment goods imports was mainly led by imports of building materials such as iron and steel and cement and transport equipment such as buses and auto-trishaws.
Import expenditure on machinery and equipment also rose marginally with higher contribution from imports of telecommunication devices. However, import expenditure on intermediate goods declined mainly due to the sharp decline in expenditure on fuel imports. The decline in fuel imports was supported by the drop in import prices of both crude oil and refined petroleum products with the lower volume of refined petroleum imports.
Decline in wheat and maize imports also contributed to the decline in the value of intermediate goods imports. However, import expenditure on textiles and textile articles, chemical products, rubber and rubber articles and base metals increased during February 2015 compared to the corresponding month of the previous year.
Cumulative import expenditure during the first two months of 2015 amounted to $ 3,211 million with an increase of 4.4%, while the main import origins of India, China, the UAE, Japan and Oman accounted for about 61% of total imports.
The deficit in the trade account in February 2015 widened by 10.4% to $ 638 million in comparison to $ 578 million in February 2014. Accordingly, during the first two months of 2015, the cumulative deficit in the trade account amounted to $ 1,410 million.
Courtesy: Daily Financial Times