Trade deficit contracts in August

Favourable developments in the external sector continued in August, with a sharp contraction of the trade deficit. Earnings from exports increased for the third consecutive month in August, reflecting gradual recovery in the global economy, while expenditure on imports declined, a media release from the Central Bank said.

Accordingly, the cumulative trade deficit contracted further during the first eight months of 2013, improving the current account of the Balance of Payments (BOP). The current account was further strengthened by increased receipts from tourism reflecting Sri Lanka as an attractive tourist destination, with higher inflows on account of workers' remittances.

Inflows to the financial account also increased during the year consolidating the BOP position. Trade Account of the BOP Earnings from exports recorded a healthy growth of 10.7 percent on a year-on-year basis in August 2013, while expenditure on imports declined by 7.7 percent reversing the recent upward trend.

Consequently, the trade deficit contracted by 24.2 percent to US $ 698 million during the month.

On a cumulative basis, earnings from exports during the first eight months of 2013 declined marginally by 1.0 percent, while expenditure on imports declined by 3.3 percent compared to the corresponding period in 2012.

Accordingly, the cumulative trade deficit during the first eight months of 2013 declined by 5.6 percent to US $ 5, 998 million, from US $ 6,356 million in the corresponding period of 2012.

Earnings from exports in August 2013 reached US $ 918 million, the highest monthly value since January 2012, led by a significant increase in earnings from agricultural exports. Earnings from agricultural exports grew on a year-on-year basis, by 41 percent to US $ 247 million in August 2013 mainly due to an increase in the export of tea and spices which account for more than three fourths of agricultural exports.

The impressive growth of tea exports by 49.3 percent in August 2013 was a combined outcome of a 43.3 percent increase in export volumes along with an increase in the average price by 4.2 percent. An increase in tea exports to Turkey and Iraq contributed mainly to this increase.

Earnings from export of spices also increased significantly by 25.8 percent, led by an increase in the volume of pepper exported with improved production, despite the decline in prices. Other major agricultural products exports also improved considerably except for rubber.

Earnings from rubber exports declined in August mainly due to the decline in prices, especially of crepe rubber. Industrial exports rose by 2.6 percent to US $ 668 million in August 2013 mainly due to an increase in earnings from petroleum products followed by food, beverages, tobacco and textiles and garments.

Earnings from petroleum products increased by 24.8 percent in August, led by a significant increase in export of bunker fuel. Earnings from food, beverages and tobacco and textiles and garment have increased by 54.7 percent and 2.1 percent.

During the month, earnings from the export of garments to the USA increased by 9.4 percent, while exports to the EU declined marginally by 0.7 percent.

However, the export of rubber products, gems, diamonds and jewellery and transport equipment declined in August. Expenditure on imports declined by 7.7 percent to US $ 1,616 million in August 2013, due to the significant decline in intermediate and investment goods imports. Expenditure on intermediate goods imports declined by 5.7 percent, year-on-year, to US $ 1,018 million in August, mainly due to a decline in the import of fertiliser and crude oil.

Although the import of crude oil declined by 34.6 percent, the expenditure on fuel increased due to a sharp increase in the import of refined petroleum products. However, the decline in expenditure on base metals, agriculture inputs, wheat and maize and diamonds and precious stones led to an overall decline in imports.

Imports of investment goods declined by 25.7 percent to US $ 331 million in August 2013 mainly due to a sharp decline in import of machinery and equipment and transport equipment, despite a 10.4 percent increase in building material imports.

Meanwhile, expenditure on import of consumer goods increased by18.6 percent, year-on-year, in August 2013 with increases in food and non-food consumer goods categories. Vehicle imports, which were declining since April 2012 began to increase from June 2013 and recorded a year-on-year increase of 109.1 percent in August 2013, becoming the main contributor to the increase in consumer goods imports.

Dairy products, seafood, oils and fats were among the other consumer goods which contributed to the increase in import expenditure.

Tourist arrivals grew at a healthy rate of 26 percent, year-on-year to 89,761 in September 2013.