Export earnings top $ 1 b mark in October

The external sector strengthened further with the trade deficit contracting sharply in October 2013. Earnings from exports increased to record levels, reflecting the ongoing recovery in the global economy, while expenditure on imports declined, a release from the Central Bank said.

The contraction of the trade deficit, higher inflows to the services account and an increase in private transfers contributed to reducing the current account deficit. The favourable development in the external sector with higher inflows to the financial account, resulted in the Balance of Payments (BOP) recording an estimated surplus during the first ten months of 2013, compared to the deficit recorded during the corresponding period of 2012.

Trade account of the BOP

Continuing the increasing trend observed from June 2013, earnings from exports in October 2013 exceeded US $ 1 billion for the first time in history. This was a 35.1 percent, year-on-year, increase which is the highest growth rate recorded since May 2011, while expenditure on imports declined by 2.8 percent compared to the corresponding month in 2012.

Consequently, the trade deficit contracted significantly by 38.9 percent to US $ 494 million.

On a cumulative basis, earnings from exports during the first ten months of 2013 grew by 3.6 percent, while expenditure on imports contracted by 1.1 percent compared to the corresponding period in 2012.

Accordingly, the cumulative trade deficit contracted by 6 percent to US $ 7,216 million, during the period compared to the corresponding period in 2012.

Earnings from exports in October 2013 reached US $ 1,041 million, the highest ever monthly value recorded in the history of Sri Lanka's exports. This growth was led by industrial exports followed by agricultural exports.

Earnings from industrial exports in October 2013, which account for more than 74 percent of total exports, increased by 34 percent on a year-on-year basis to US $ 771 million mainly due to higher export of textiles and garments.

Earnings from textile and garment exports grew by 46.8 percent, year-on-year, to US $ 436 million in October 2013, which was the highest monthly value of export of garment and textiles ever recorded. Exports of garments to the EU and USA, which are Sri Lanka's major export destinations, recorded remarkable growth rates of 53.2 percent and 43.4 percent in October 2013, reflecting the recovery in those economies and seasonal demand.

Meanwhile, earnings from rubber product exports increased by 50.1 percent, year-on-year, to US $ 94 million in October 2013, the highest monthly value since August 2012, led by higher exports of rubber tyres.

All categories of industrial exports, except gems, diamonds and jewellery, animal fodder and petroleum products grew in October 2013.

Earnings from agricultural exports rose by 37.4 percent, year-on-year, to US $ 258 million in October 2013 mainly due to an increase in export earnings from tea followed by spices.

Earnings from tea exports recorded a healthy growth of 26.6 percent to US $ 147 million in October 2013.

This was the combined outcome of a 13.6 percent increase in export volumes and an increase in the average export price of tea by 11.4 percent. Earnings from the export of spices increased significantly by 79.9 percent to US $ 41 million led by pepper and cinnamon exports.

Continuing the strong performance recorded since June 2013, the volume of pepper and cinnamon exports increased substantially although prices of those commodities declined, year-on-year. However, in October 2013 rubber export earnings contracted by 29.0 percent compared to October 2012, due to the continuing decline in export volumes and prices, owing to low demand from major rubber consumers, such as China and Japan.

Imports

Expenditure on imports declined by 2.8 percent to US $ 1,535 million in October, due to the significant decline in intermediate and investment goods imports. Expenditure on intermediate goods imports declined by 7.8 percent, year-on-year, to US $ 897 million in October mainly due to the decline in the import of fuel and textiles.

Expenditure on the import of petroleum products declined in October due to the availability of sufficient stocks from previous months. Despite the strong growth in the export of textiles and garments, there has been a steady decline in imports of textile and textile articles, reflecting improved backward linkages and higher value addition in the garment industry.

Lower import of diamonds and precious stones and metals, rubber and articles also contributed to the decline in intermediate goods imports.

However, fertiliser imports increased sharply by 110.7 percent year-on-year, to US $ 27 million in October 2013, mainly due to the low base in the corresponding period in 2012 and to ensure availability of adequate stocks for the upcoming Maha season.

In October 2013, import expenditure on investment goods declined by 6.8 percent, year-on-year, to US $ 351 million mainly due to the decline in machinery and equipment imports by 16.5 percent and a decline in transport equipment imports by 11.0 percent although building material imports increased by 13.4 percent. Expenditure on consumer goods imports recorded a 25.6 percent growth, year-on-year, to US $ 286 million in October with increases in food and non-food consumer goods categories.

Vehicle imports, mainly contributed to the increase in consumer goods imports, recording a year-on-year increase of 150.7 percent in October 2013. Dairy products, clothing and accessories, Oils and fats, medical and pharmaceuticals and household and furniture also contributed to the increase in consumer goods imports.

Tourist arrivals grew 27.9 percent, year-on-year to 102,805 in October. Accordingly, tourist arrivals during the first ten months of the year amounted to 904,015, a year-on-year growth of 16.8 percent.

Earnings from tourism recorded a year-on-year growth of 26 percent during the first ten months of 2013 to US $ 996.2 million, compared to the cumulative earning of US $ 790.5 million during the corresponding period in 2012. The top five sources of tourist arrivals in October 2013 were India, UK, Middle East, Germany and the Maldives, accounting for about 50 percent of tourist arrivals during the month.

Current transfers in the BOP

Workers' remittances increased by 14.8 percent, year-on-year, to US $ 599.6 million in October 2013 from US $ 522.1 million in October 2012. The cumulative inflow from workers' remittances increased by 11.8 percent to US $ 5,521.9 million during the first ten months of 2013 compared the corresponding period of 2012.

The growth in remittances continues to be driven by increased labour migration in the professional and skilled categories.

FDI inflows during the first nine months of 2013 increased by 42 percent to US $ 870 million from US $ 614.7 million in the corresponding period in 2012. During the first eleven months of 2013, the CSE received net foreign inflow of US $ 176.5 million, while net inflow to the Government securities market amounted to US $ 506 million.

Long-term loans obtained by the government during the first nine months of 2013 amounted to US $ 1,302 million, compared to US $ 2,450 million obtained by way of long-term loans during the corresponding period in 2012.

Meanwhile, inflows to Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) amounted to US $ 1,548.3 million by end October 2013, of which US $ 850 million were from the proceeds of bond issuances of LSBs.

Overall BOP position

From January to October 2013 the overall BOP is estimated to have recorded a surplus of US $ 749 million compared to a deficit of US $ 185 million during the corresponding period in 2012. This improvement in the overall BOP was achieved despite the challenging global economic conditions during the year.

Sri Lanka's gross official reserves amounted to US $ 7.1 billion by end October 2013, while total international reserves, which include foreign assets of commercial banks, amounted to US $ 8.5 billion.

In terms of months of imports, gross official reserves and total international reserves were equivalent to 4.5 and 5.4 months of imports, at end October 2013. Sri Lanka's gross official reserves were maintained at a satisfactory level during the first ten months of 2013, inspite of outflows on account of foreign debt service payments of US $ 1,251 million and IMF-SBA payments of US $ 369 million.