Trade deficit continues to narrow
The trade deficit continued to narrow and recorded a 24 percent
year-on-year (Y-O-Y) decline in January 2013.
The policy measures implemented early in 2012 to discourage
non-essential imports have continued to ease pressure on the trade
deficit and therefore on the current account balance.
The policy measures have therefore helped withstand the adverse
impact of the slowing down of global demand on exports. Inflows on
account of export of services remained favourable in January 2013,
further supporting the current account, while total reserves were
maintained at healthy levels, strengthening the overall balance of the
Expenditure on imports declined by 21.3 percent, Y-O-Y, to $ 1,507
million in January 2013, reflecting the effectiveness of the policies
introduced in early 2012 to curb import expenditure.
Imports of refined petroleum declined by 58.4 percent, Y-O-Y, in
January 2013, partly due to increased hydro-power generation.Lower
expenditure on import of transport equipment, gold and vehicles also
made a significant contribution towards the decline in import
expenditure in January 2013.However, expenditure on import of certain
intermediate goods such as chemical products, agricultural inputs,
plastic and articles thereof and wheat and maize which accounted for
about 11 percent of imports, increased on a Y-O-Y basis in January 2013.
Import expenditure on investment goods also declined on a Y-O-Y basis in
January 2013, as imports of transport equipment and machinery and
Nevertheless, import expenditure on building materials, categorised
under investment goods, increased in January 2013. With respect to
consumer goods imports, expenditure on imports of food and beverages and
non-food consumer goods declined. Vehicle imports, which declined by
51.7 percent, Y-O-Y, made the largest contribution towards the decline
in expenditure on consumer goods imports.
As demand for exports remained fettered by the slow recovery of major
export destinations, namely, the EU and the USA, the decline in export
earnings continued into 2013. Earnings from exports declined by 18.2
percent to $ 727 million in January, as earnings from all major
categories of exports declined, on a y-o-y basis.
The decline was mainly driven by industrial exports which declined by
20.7 percent. Earnings from export of textiles and garments declined by
8.9 percent. Export of transport equipment, gems, diamonds and jewellery
and rubber products were the other categories of export that contributed
significantly to the decline in export earnings. Earnings from
agricultural exports declined in January 2013, as a result of earnings
from traditional and non-traditional agricultural exports
declining.Despite exports of tea continuing to fetch favourable prices,
the drop in demand from main markets led to a decline in earnings from
tea exports in January. However, export earnings from green tea,
although its share remains low, recorded an y-o-y increase. While the
price of natural rubber has decreased globally, the decline in volumes
of rubber exports could be attributed partly to the demand from local
manufacturers of rubber based products. Non-traditional agricultural
exports, earnings from the export of spices increased in January 2013,
led mainly by the commendable performance of pepper and clove exports.
Earnings from the export of unmanufactured tobacco increased marginally
in January 2013.
Tourist arrivals in January 2013 increased by 13.4 percent, Y-O-Y, to
97,411 while earnings from tourism grew at a healthy rate of 20.5
percent when compared with the corresponding month of 2012, to $ 107
million. Workers’ remittances amounted to $ 524 million in January 2013,
compared to $ 473 million in January 2012, thus recording a Y-O-Y growth
10.8 of percent.
In January 2013, net sales by foreign investors at the Colombo Stock
Exchange (CSE) amounted to $ 10.4 million whereas net foreign purchases
amounting to $ 4 million were recorded in January 2012. However, there
has been a noticeable increase in transaction volumes at the CSE in
January 2013, when compared with the corresponding month of January
2012. There have been significant inflows of foreign investments to the
Government securities market, with net inflows to Treasury bills and
Treasury bonds amounting to $ 289 million during January 2013 compared
to a net inflow of $ 170 million in January 2012. In January 2013,
long-term loans obtained by the government amounted to $ 125 million.
Gross official reserves amounted to $ 6,855 million by end January 2013,
while total international reserves which include gross official reserves
and foreign assets of commercial banks, amounted to $ 8,538 million by
end January 2013. In terms of months of imports, gross official reserves
were equivalent to 4.43.