Trade deficit narrows in first nine months

The external sector sustained its growth momentum with expanding external trade activities in September 2014.

Since July 2014, the expenditure on imports continued to rise reflecting the rebound of investment goods imports in particular.

As the cumulative earnings on exports outweighed the cumulative expenditure on imports, the trade deficit during the first nine months of 2014 narrowed, while tourist earnings and workers' remittances continued to be stable sources of inflows improving the current account of the Balance of Payments(BOP).

Inflows to the financial account in the form of project loans to the Government and inflows to the banking sector continued to strengthen the BOP resulting in a healthy surplus in the overall BOP during the first nine months of 2014, despite some volatility in the government securities and equity markets.

Earnings from exports increased by 0.5 percent, year-on-year, in September 2014 to US $ 903 million while the cumulative earnings increased by 13.0 percent to US $ 8,288 million during the first nine months of 2014.

The largest contribution to export growth in September 2014 was from textiles and garments followed by coconut and printing industry products.

Export earnings of textiles and garments grew by 4.4 percent in September 2014 supported by a substantial improvement in exports of outerwear.

The increase of earnings of coconut exports was mainly led by the significant increase in kernel product exports.

However, some major exports such as tea, spices, precious metals and gem and diamonds, on a year-on-year basis, mainly due to the higher exports in September 2013.

Export earnings of petroleum products, particularly on bunkering and aviation fuel were significantly affected by the heightened competition from major regional players.

Major export destinations from January to September 2014 were USA, UK, Italy, India and Germany accounting for around 50 percent of exports.

Expenditure on imports increased by 12.2 percent, year-on-year, to US $ 1,667 million in September 2014, while on a cumulative basis, imports grew 5.4 percent to US $ 14,222 million during the first nine months of 2014.

The increase in import expenditure in September 2014 was mainly due to the significant increase in imports of transport equipment particularly a dredger vessel followed by imports of vehicles such as motorcycles and motor cars for personal use.

Further, rice imports also increased significantly during the month as a result of a shortfall in domestic rice production during the year.

However, the expenditure on fuel imports declined significantly during the month due to a sharp reduction in crude oil imports as the available crude oil stocks were used by the refineries.

As a result of substantial decline in volume of fertiliser imports, the import expenditure on fertiliser declined. The import expenditure on investment goods showed a broad based increase except the decline in imports of machinery and equipment due to lower imports of engineering equipment.

During the first nine months of 2014, the main import origins were India, China, UAE, Singapore and Japan accounting for about 60 percent of total imports.

The number of tourist arrivals continued to record an impressive growth of 16.8 percent, year-on-year in September 2014, with 105,535 tourists arriving during the month.

The cumulative tourist arrivals in the first nine months grew by 22.4 percent to 1,107,178 compared to the corresponding period of 2013. Earnings from tourism are estimated to be US $ 152 million in September 2014 compared to US $ 122 million recorded in September 2013.

The substantial increase in the number of tourist arrivals and the increase in estimated average spending per night resulted in the cumulative earnings from tourism recording a growth of 31.4 percent to US $ 1.6 billion during the first nine months of 2014 compared to US $ 1.2 billion during the corresponding period in 2013.

Workers' remittances recorded an increase of 3.1 percent, year-on-year, amounting to US $575 million in September 2014 compared to US $ 558 million in September 2013.

Cumulative inflow from workers' remittances stood at US $ 5,090 million for the first nine months of 2014, a growth of 9.1 percent compared to the corresponding period of 2013.

For the first nine months of 2014, long-term loans obtained by the Government amounted to US $ 1,232 million, which is a decrease of 5.7 percent from the corresponding period in 2013.

Net inflow to the Government securities market from January to end September 2014 amounted to US $ 100 million, despite some outflow in foreign investment in Government securities during August and September.

Meanwhile, foreign investments in the Colombo Stock Exchange (CSE) recorded a net outflow of US $ 9.5 million in September 2014, although, on a cumulative basis, foreign investment in the CSE stood at US $ 107 million by end of October 2014.