Trade deficit declines in June

Policies adopted by the Central Bank and the government earlier this year have helped contain the deficit in the trade balance of the balance of payments substantially in June and across the second quarter of 2012, a media release issued by the Central Bank stated.

The deficit in the trade balance, which was $ 848m in June, 2011 and $ 942m in December 2011, was substantially lower in June 2012, amounting to $ 663m.

This is the lowest level recorded by the trade balance since February 2011. Expenditure on imports, which had decreased on a year-on-year basis since April 2012, recorded a further decline of 15 percent, year-on-year, in June 2012, as expenditure on several categories of imports, which had contributed significantly to the expansion of the trade deficit last year declined.

As in the previous month, expenditure on imports of motor vehicles and gold contracted in June too. Expenditure on imports of motor vehicles and gold declined, by 58.9 per cent and 71.1 per cent. Import expenditure on wheat and rubber-based products, within intermediate goods, came down.

Amongst other intermediate goods imports which helped bring down expenditure on imports in June was crude oil, reflecting the impact of lower world market prices for crude oil. Meanwhile, investment goods imports, which had continued to record strong growth in the preceding months, also recorded a decline in June 2012.As in the case of many other Asian countries including India and Thailand, Sri Lanka’s export earnings have also slowed down in recent months.

The decline in the prices of commodities such as cotton and rubber in international markets has been a significant factor contributing to the decrease in Sri Lanka’s export earnings in recent months. Meanwhile, in the face of dampening global demand along with faltering economic activity, particularly in the European region, lower demand for certain products such as rubber based products, has adversely impacted on some exports, by June. Nevertheless, exports of apparel, which have the largest share in exports, have sustained demand in major markets and are therefore expected to remain firm in volume terms.