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Trade deficit widens to US dollars 716 million

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Earnings from export of agricultural goods increased by 8.9 per cent

The trade deficit widened on a year-on-year basis for the third consecutive month in May 2021 to US dollars 716 million, compared to US dollars 407 million recorded in May 2020. Greater increase in import expenditure as against the increase in export earnings in May 2021 over May 2020 resulted in the widening of the trade deficit, according to statistics released by the Central Bank yesterday.

However, the trade deficit showed a month-on-month improvement in May 2021 compared to US dollars 889 million in April 2021. The cumulative trade deficit widened to US dollars 3,663 million during the period from January

to May 2021 from US dollars 3,101 million recorded in the corresponding period in 2020.

Central Bank’s data on the External Sector Performance – May 2021, further showed the following.

The ratio of the price of exports to the price of imports, deteriorated by 11.5 per cent in May 2021, compared to May 2020, with prices of imports having increased while prices of exports declining.

The import volume index and unit value index increased by 45.7 per cent and 11.0 per cent, respectively, on a year-on-year basis in May 2021. This indicates that the increase in import expenditure, on a year-on-year basis, was attributable to the combined impact of higher import volumes and prices.

Both exports and imports were significantly higher in May 2021 than in May 2020, mainly due to the statistical effect of pandemic related disruptions a year ago. Earnings from exports increased, while imports declined in May 2021 compared to the previous month.

During the month, workers’ remittances continued to increase, while earnings from tourism remained at minimal levels. In the financial account, foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded marginal net outflows in May 2021.

Meanwhile, the Sri Lankan rupee remained broadly stable throughout the month, and gross official reserves stood at US dollars 4.0 billion by end May 2021.

Earnings from merchandise exports increased to US dollars 892 million in May 2021, recording growth rates of 52.0 per cent and 9.0 per cent over May 2020 and April 2021, respectively, with higher earnings from all major sectors. Cumulative export earnings from January to May 2021 amounted to US dollars 4,692 million, a 33.3 per cent increase compared to the

corresponding period of 2020, which is largely attributable to lower statistical base during the island wide lockdown in the early months of 2020.

Along with improvements in exports across all subcategories, earnings from the export of industrial goods registered a notable increase in May 2021 over May 2020. The month-on month increase in earnings from industrial exports in May 2021 was 6.2 per cent, led by broad based improvement in most subcategories.

In May 2021, earnings from the export of agricultural goods increased by 8.9 per cent compared to May 2020.

Expenditure on the importation of both food and beverages and non-

food consumer good categories declined in May 2021 on both year-on- year (by 4.1 per cent) and month-on-month (by 9.0 per cent) bases.



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Sri Lanka’s Ceylon tea prices weak, output fall expected

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ECONOMYNEXT – Sri Lanka tea prices remained weak in the third week of July amid with slightly lower volume being sold from a week earlier, and industry expecting crop intake to fall, as rains ease and fertilizer problem starting to be felt, industry officials said.

Preliminary information from estates indicated that crop volumes may fall in the coming weeks, market participants said. There had also been quality issue in recent auctions brokers said.

There are anecdotal evidence of tea farmers experiencing problems in getting fertilizer on time after Sri Lanka banned chemical fertilizer.

On the buying side, currency problems in Turkey has also hit purchasing power.

Sri Lanka sold 6.8 million kilograms of tea in the auction of July 19 and 20, down from 7.1 million kilograms a week earlier.

It was made up of 0.95million kilograms of Ex-Estate teas (mainly high grown teas sold while in the factory itself to retain quality) and 2.8 million kilograms in Low Grown (Leafy/Tippy) teas.

Low Growns

Last week the Low Grown tea sale average was 630.10 rupees up by 7.77 rupees from a week earlier. BOPF teas maintained prices from last week.

This week, a few select BOP bests gained while the rest maintained last week’s prices.

Select best FBOP/FBOP1were firm and then eased marginally as the sale progressed. Bests and cleaner below bests gained while the rest maintained prices.

Well-made varieties and cleaner below bests FBOPF/FBOP1’s in general maintained steady prices while others declined following lower quality.

High Growns

Last week, the High Grown auction average was tea sale average of 545.47 rupees.

This week in BOP teas, select best and best westerns dropped 20-30 rupees a kilogram.

Brighter below bests declined by 10-20 rupees a kilogram while the balance along with the plainer varieties held firm prices from last week.

BOP Nuwara Eliya prices were irregular following lower quality.

Better Udapussellawa’s declined 20 rupees per kilogram whereas the balance were firm towards the end of the auction. Uva’s maintained last week prices.

In BOPF category, a few best westerns went up by 50 rupees a kilogram while the others gained to a lesser extent.

Brighter sorts in the below best category went up by 30-50 rupees a kilogram while the balance teas along with plainer varieties were irregular. BOPF Nuwara Eliya’s followed a similar trajectory to the BOP teas.

Better Udapussellawa’s were irregular while the rest together with the Uva’s maintained.

Medium Growns

Last week, the Medium Grown auction average was 520.13 rupees up 2.37 rupees from a week before. This week well-made OP/OPA’s gained 10-20 rupees while the balance were firm and as the sale progressed, gained marginally.

BOPF better sorts were lower, brokers said, while well made BOP teas maintained and the rest declined by 20-30 rupees a kilogram.

Select Best FBOP’s eased in general.

 

FF1’s declined 10-20 rupees a kilogram,.

CTC

High grown BP1s were irregular while PF1 better teas gained 20 rupees a kilogram.

Mid grown BP1s declined 10-20 rupees a kilogram while PF1s followed a similar trend to their BP1 teas. Low grown BPIs better sorts gained 20 rupees a kilogram, while better PF1 teas gained 10 rupees while the rest were irregular.

Crop and weather

Westerns and Nuwara Eliyas recorded a slight decline in crop whilst the Uva/Udapussellawa and Low grown districts maintained, Ceylon Tea Brokers said.

A general decrease in crops were seen in the previous weeks, leading to low volumes at this week’s auction.

The Department of Meteorology forecasts heavy showers with strong winds in the Nuwara Eliya region, eavy showers are expected in the Ruhuna and Sabaragumwa, in the coming week.

The Western planting districts including Nuwara Eliyas reported bright mornings with scattered evening showers. The Low grown region had bright mornings with scattered evening showers.

 

 

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Some Sri Lanka firms could be hit on import controls as reserves fall: Fitch

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ECONOMYNEXT – Some Sri Lankan firms could be hit while firms in essential goods may be less affected and import substitution firms could benefit if import controls are tightened on weak external finances, Fitch, a rating agency said.

“Sri Lanka sovereign’s weak external finances will affect corporates importing non-essential finished goods such as consumer durables more than corporates importing essential finished goods such as pharmaceuticals, food or clothing,” Fitch said.

“At the same time, we believe restrictions are less likely in the near term on the importation of raw materials for the domestic manufacture of essential products such as personal care, or for those industries serving as import-substitutes such as tyre and footwear manufacturers.”

Inflated Reserve Money

Sri Lanka’s central bank has been injecting liquidity (inflating reserve money supply in excess of the external monetary anchor or peg) keeping interest rates and credit out of line with the balance of payments and triggering forex shortages.

The central bank has lost foreign reserves as the liquidity was used in state salaries and later in cascading bank credit, and the news money redeemed against foreign reserves for imports or debt payments at a non-credible peg (convertibility undertaking).

The convertibility undertaking has far shifted from around 185 to 203 to the US dollar since early 2020. After convertibility was restricted for trade transactions, as well as some capital transfers banks started to ration dollars.

Parallel exchange rates have also risen as a result.

Due to Mercantilist beliefs – which are also taught in Keynesian universities – monetary instability has been blamed on imports, and authorities tried to control imports.

In Sri Lanka oil often is blamed for currency falls, though liquidity injections in 2015 created a currency crisis as global oil prices collapsed.

However as credit driven by the new liquidity shifted to permitted areas, the trade deficit had exceeded the 2019 levels by May 2021.

In June some import restrictions were relaxed.

Non-Essential

Among Fitch Rated firms, consumer durables sellers were likely to be most affected.

“Singer (Sri Lanka) PLC (AA(lka)/Stable) and Abans PLC (AA(lka)/Stable) are the most exposed among Fitch-rated corporates to tighter import controls, due to the discretionary nature of their products,” the rating agency said.

“A tightening in import controls may exert pressure on both entities’ ratings, owing to low headroom. However, the availability of buffer inventories, a degree of local manufacturing, and potential group synergies in the case of Singer, could help mitigate the impact in the near term.”

Meanwhile firms that critics call crony import substitution firms which have actively lobbied politicians for protection in the past to create a domestic ‘black market’ at high prices could benefit.

“We expect sales volumes for domestic manufacturers to rise in the near term as they attempt to fill shortages created by import restrictions,” Fitch said.

“Therefore, corporates such as the domestic tyre manufacturer Ceat Kelani Holdings (Private) Limited (CKH, AA+(lka)/Stable), footwear manufacture and retailer DSI Samson Group (Private) Limited (DSG, AA(lka)/Stable), as well as electric cable producer Sierra Cables PLC (AA-(lka)/Negative), may be long-term beneficiaries as their products serve as import substitutes.”

Neutral

The impact on alcohol, beverage and phamarceuticals may be neutral.

“We believe pharmaceutical manufacturers and distributors such as Hemas Holdings PLC (AAA(lka)/Stable) and Sunshine Holdings PLC (AA+(lka)/Stable) are less likely to see tighter import restrictions despite significant import exposure,” Fitch said.

“This is because of the essential nature of their goods, and limited availability of their products in the local market.

“Hemas and Sunshine have limited domestic manufacturing capabilities for certain generic drugs, while around 90% of the pharmaceutical products they sell are imported.

“This is because domestic pharmaceutical manufacturing is at a nascent stage, with producers lacking the technological know-how and infrastructure near term as they attempt to fill shortages created by import restrictions.”

 

 

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Sri Lanka Insurance holds Annual General Meeting via Zoom online platform

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Sri Lanka Insurance holds its Annual General Meeting via Zoom online platform on 7th July 2021. The Chairman and Board of Directors were participated for the meeting from their respective locations adhering to the Covid 19 health and safety standards issued by Health authorities.

During the Annual General Meeting, it was declared that the company has closed year 2020 in a positive note recording phenomenal growth with exceptional service innovations.

Sri Lanka Insurance the premier insurer to the nation recorded stellar performance in 2020 to record a Profit before taxation of Rs. 7.9 billion for the year2020 , with a strong improvement in combined Gross Written Premium (GWP) of Rs. 39.4 billion denoting growth of 16.65%.

In the year of 2020 Sri Lanka Insurance reported 29.9 % growth in life insurance premium increasing to Rs.19.8 from 14.8 billion whilst Sri Lanka Insurance General reported 6.27% premium growth increasing to Rs.20.1 billion. General insurance contributed 51% towards the total GWP whilst Life Insurance contributed 49 %.

In continuing with its tradition of leadership, Sri Lanka insurance in 2020, surpassed its own record to declare a sum of Rs.8.6 billion as bonus to policyholders. The cumulative life insurance bonus paid out during the past 15 years tops a massive Rs.73.2 billion making the SLIC bonus payout unmatchable.

“Inclusive insurance or as I like to call it “Insurance for All” is something I have consistently reiterated, for it is without a doubt one of the best ways to safeguard the quality of life for every Sri Lankan. Insurance helps everyone, even those at the base of the economic pyramid . A majority of Sri Lankans are unaware that Insurance acts as a safety net in times of crisis and can provide people and businesses with lifeline to help them recover from unforeseen events to re-establish their livelihoods. What is more disconcerting is that the lack of awareness has given rise to the misconceptions that insurance is a product for a privileged few. The task of delivering “Insurance for All” is no easy feat. However, with over 59 years of expertise in serving the Sri Lankan market, I am convinced SLIC is best equipped to lead the movement to make insurance accessible to all.” noted Mr.Jagath Wellawatta, Chairman of SLIC.

Notwithstanding the challenging macroeconomic environment and large-scale disruptions due to the COVID-19 outbreak, SLIC delivered an excellent performance in 2020, even outperforming the industry on many fronts. With our perceptions and outlook coloured by the pandemic, we embarked on a new strategic planning exercise aimed at mapping out SLIC’s growth trajectory for the next 3 years. Eager to put our plan into action, we advanced the first phase of our agenda and undertook a broad based restructuring initiative to embed a greater degree of management oversight across the General business and the Life business, which we felt will pave the way for SLIC to systematically improve the scalability of each business, based on specific opportunities in the market.” noted Mr. Chandana L. Aluthgama, Chief Executive Officer of SLIC.

Established in 1962, Sri Lanka Insurance Corporation is the largest government-owned insurance company in Sri Lanka, with a managed asset base of over Rs.235 billion and a Life fund of Rs. 134 billion, the largest in the local insurance industry. Sri Lanka Insurance ranked as the ‘Most Loved Insurance Brand’ and the ‘Most Valuable General Insurance Brand’ in the country by Brand Finance for the fourth consecutive year. Further Sri Lanka Insurance recognized as a “Great Place to Work” in Sri Lanka by Great Place to Work. The company is on the mission of being a customer focused company which constantly innovates in providing insurance services to customers and is now serves customers through an extensive network of 158 branches.

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