Sri Lanka's external sector stable - Central Bank

Sri Lanka's external sector continues to remain stable with increased inflows to the Current Account and Financial Account of the Balance of Payments (BOP), according to the External Sector Performance Report (May 2013) of the Central Bank.

Earnings from tourism and current transfers by way of workers’ remittances increased notably, strengthening the Current Account. The Colombo Stock Exchange (CSE) recorded increased foreign investments reflecting improved investor confidence.

Commercial banks and the corporate sector have raised more foreign funds this year, given the stable macroeconomic environment and further relaxation of exchange control regulations.

During the first five months of the year, foreign investments in Government Securities also recorded an impressive growth inspite of the uncertainties in international financial markets, the report said. The deficit in the trade balance declined by 1.8 percent, year-on-year, in May 2013, reversing the increase that was seen in April 2013.

On a cumulative basis, the deficit in the trade balance continued to decline for the sixth consecutive month.Expenditure on imports declined moderately by 1.7 percent, year-on-year, in May 2013.

Although expenditure on imports of fuel, textiles and textiles, transport equipment, base metals, fertiliser, vehicles and dairy products declined notably, their impact was largely offset by increased expenditure on import of machinery and equipment, wheat, gold and building materials.

Fuel imports, which account for nearly a quarter of total import expenditure, declined by 14.1 percent in May 2013, while textiles and textile products, which account for over 10 percent of total imports, declined by 18.4 percent.

Gold imports, meanwhile, increased by 44.4 percent in May 2013, with the decline in gold prices in the world market remaining supportive of gold imports.

Expenditure on consumer goods imports declined marginally by 0.7 percent as import expenditure on non-food consumer goods declined.

Earnings from exports declined marginally by 1.5 percent in May 2013, as increased earnings from industrial exports moderated the impact of the decline in earnings from agricultural exports. Export earnings from garments, which have a share of nearly 40 percent of total exports, increased by 2.1 percent in May 2013, thus buoying export earnings.

Export of transport equipment increased notably in May 2013 as in the previous month, while export of petroleum products also increased in May 2013.

However, partly reflecting the easing of gold prices in the world market, export earnings from gems, including diamonds, and jewellery declined by 40.5 percent in May 2013.

Food, beverages and tobacco and rubber products were among the other industrial products which contributed to the drop in export earnings, the report said. Sri Lanka attracted 438,653 tourists during the year up to the end of May 2013, recording a year-on-year growth of 13.2 percent in tourist arrivals.

Earnings from tourism increased by 34.5 percent in May 2013 to $ 77 million, from $ 57 million in May 2012.

Workers’ remittances increased by 6.6 percent, year-on-year, to $ 541 million in May 2013 from $ 507 million in May 2012. Accordingly, cumulative inflows of workers’ remittances during the first five months of 2013 amounted to $ 2,650 million, an increase of 6.4 percent compared to the corresponding period of 2012.

By end May 2013, Sri Lanka's gross official reserves amounted to $ 6.6 billion.

Accordingly, Sri Lanka's gross official reserves have been at a satisfactory level inspite of outflows in the first five months of 2013, including the IMF Standby Arrangement (SBA) principal payment of $ 225.5 million, foreign debt service payments of around $ 575 million and the accumulated valuation losses of $ 312 million, due to the cross currency exchange rate movements and the sharp decline in gold prices.