Trade deficit contracts

The external sector strengthened further with the trade deficit contracting in January 2014.

Earnings from exports increased, reflecting the ongoing recovery in the global economy while expenditure on imports also increased, albeit at a lower rate, driven mainly by the increase in intermediate goods imports. The contraction in the trade deficit, higher inflows on account of workers’ remittances and an increase in tourist earnings contributed to reducing the current account deficit.

These developments with continued inflows to the financial account have resulted in a higher surplus in the Balance of Payments (BOP) during January 2014, compared to the corresponding period of 2013.

Trade Account of the BOP Earnings from exports increased substantially compared to the increase in expenditure on imports, resulting in the trade deficit continuing to contract in January 2014. On a year-on-year basis, earnings from exports in January 2014 increased significantly by 23.2 percent to US $ 898 million, while expenditure on imports increased by 7.9 percent to US $ 1,654 million.

Accordingly, the trade deficit contracted by 5.9 percent to US $ 756 million.

The significant growth in exports was led by improved performance in industrial exports followed by agricultural exports. Earnings from industrial exports, which account for more than three fourths of total export earnings increased by 23.6 percent, year-on-year, to US $ 692 million in January 2014, an increase in earnings from all major industrial export categories except petroleum products.

Textiles and garments which is the main contributor to the growth in industrial exports grew by 23.4 percent to US $ 412 million.

The EU and USA continued to be the major markets for textiles and garments representing around 85 percent of total garment exports.

Exports of textiles and garments to non-traditional markets increased by 38.3 percent reflecting greater diversification of markets in the industry.

Earnings from export of food, beverages and tobacco increased more than two fold to US $ 38 million reflecting improved performance in almost all categories.

Exports of rubber products grew by 16.6 percent to US $ 73 million mainly due to the increase in exports of rubber tyres and compounded rubber, despite the decline in export earnings from surgical and other gloves.

Earnings from gems grew substantially by 93.0 percent, year-on-year, to US $ 21 million. However, export earnings from petroleum products which mainly comprise bunkering and aviation fuel declined by 18.4 percent to US $ 33 million, due to a decline in prices despite the 10.6 percent increase in export volumes.

The intense competition in the region, particularly from India and Singapore caused the price of bunker fuel to steadily decline in the international market. Agricultural exports grew by 21.6 percent in January 2014, to US $ 203 million, due to the healthy performance in tea and coconut products exports.

Export earnings from tea increased by 14.9 percent to US $ 116 million mainly due to the significant improvement in tea prices in the international market.

The average export price of tea increased to US $ 5.31 per kg in January 2014 from US $ 4.583 per kg in January 2013. Earnings from coconut product exports increased by more than two fold to US $ 22.5 million, due to improved performance in kernel and non-kernel coconut products in terms of price and volume.

Export earnings from seafood and minor agricultural products also increased significantly in January 2014.

However, earnings from exports of spices, which has be come a significant contributor to agricultural export earnings in recent times, declined by 16.1percent in January 2014, mainly due to the decline in export earnings from cloves, despite the improved performance of nutmeg.

Expenditure on imports grew by 7.9 percent, year-on-year, to US $ 1,654 million in January 2014, led by an increase in intermediate goods followed by consumer goods. Expenditure on intermediate goods imports increased by 22.3 percent, year-on-year, to US $ 1,033 million mainly on account of the increase in fuel imports. Expenditure on fuel increased by 68.1 percent, year-on-year, to US $ 490 million in January 2014 due to higher import of crude oil (by 41.2 percent), refined petroleum products (by 85.4 percent) and coal (by 79.4 percent).

The increase in imports of refined petroleum products was due to greater dependence on thermal power generation as hydro power generation declined due to adverse weather conditions. Expenditure on importation of cement clinkers, iron and steel, palm oil, paper and paper boards also increased in January 2014.

Despite the strong growth in textiles and garment exports, imported inputs into the industry declined by 4.7 percent.