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Sunday, 7 April 2013

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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 BOP.

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 equipment declined.

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.

 

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