Improvements in trade deficit and worker remittances

External sector performance – January 2021 overview extracts

Sri Lanka’s external sector continued to recover in many aspects during January 2021, mainly supported by an improved trade deficit and a notable increase in workers’ remittances. The reduced deficit in the trade account in January 2021 compared to January 2020 was the result of a larger decline in merchandise imports over merchandise exports.

Meanwhile, workers’ remittances continued to record a notable growth in January 2021, strengthening the external current account. In the financial account, foreign investment in the government securities market recorded a marginal net inflow while the Colombo Stock Exchange (CSE) recorded net outflows in January 2021. The Sri Lankan rupee experienced depreciation pressure in January 2021, but measures taken by the Central Bank and the continuation of restrictions on non-essential imports by the government helped contain this pressure.

Trade Balance:

The deficit in the trade account narrowed in January 2021 by US dollars 63 million to US dollars 667 million, from US dollars 730 million recorded in January 2020, with a larger decline in imports compared to the decline in exports. In December 2020, the trade deficit was US dollars 562 million.

Terms of trade, i.e., the ratio of the price of exports to the price of imports, improved by 7.0 per cent in January 2021, compared to January 2020, with higher export prices and lower import prices compared to January 2020.

Overall exports:

Earnings from merchandise exports in January 2021 were 8.0 per cent lower compared to January 2020. Earnings from exports in January 2021 were recorded at US dollars 924 million compared to US dollars 1,005 million in January 2020 and US dollars 964 million in December 2020.

Industrial exports:

Earnings from the export of industrial goods declined by 11.4 per cent in January 2021 compared to a year ago, mainly due to the decline in the export of textiles and garments by 10.8 per cent and the decline in the export of petroleum products by 58.5 per cent. The export of garments to all major destinations recorded a decline. Earnings from the export of petroleum products that comprises bunkering and aviation fuel and other petroleum products declined due to the decline in quantities supplied as well as the decline in prices. Further, exports under gems, diamonds and jewellery and many of the smaller export segments declined. However, sizable increases were recorded in relation to rubber products (mainly surgical and other gloves, and tyres); machinery and mechanical appliances (mainly electrical and electronic equipment); food, beverages and tobacco (mainly vegetables, fruits and nut preparations), among others.

Agricultural exports:

Export earnings from agricultural goods increased by 5.9 per cent in January 2021 on a year-on-year basis, mainly due to the increase in the export of spices, such as cinnamon, pepper and cloves. Earnings from tea exports increased marginally due to the price increase, while volume exported had declined. The export of coconut fibres, natural rubber and unmanufactured tobacco also recorded marginal increases. Most of the other agricultural export categories recorded a decline in earnings.

Mineral exports:

Mineral exports increased in January 2021 compared to January 2020, mainly due to the increase in export of titanium and zirconium ores, slag and other precious metals.

Export indices:

The export volume index declined by 10.2 per cent while the unit value index increased by 2.5 per cent on a year-on-year basis in January 2021. This indicates that the decline in export earnings was due to lower export volumes.(CBSL)