External sector makes satisfactory progress - CB

Sri Lanka's external sector made satisfactory progress during the period from January to October 2014, with continued foreign currency inflows in the form of earnings from exports, workers' remittances and tourism as well as inflows to the financial account.

The external sector is expected to improve further during the remaining period of 2014 with inflows to the current and financial accounts of the Balance of Payments (BOP).

Tourist earnings are expected to increase with the commencement of the peak tourist season in November and workers' remittances are expected to rise during the festive season.

This, together with the envisaged decline in the trade deficit is expected to reduce the current account deficit, while projected inflows by way of foreign direct investments, inflows to the Colombo Stock Exchange and private sector would help strengthen the financial account of the BOP. Consequently, the overall BOP position is expected to record a healthy surplus by the end of the year despite some volatility experienced in the government securities and equity markets recently.

Export Performance

Earnings from exports declined by 13.7 per cent, year-on-year, in October 2014 to US dollars 899 million, after recording continuous monthly increases since June 2013, while cumulative earnings increased by 9.7 per cent to US dollars 9,187 million during the first ten months of 2014. This decline was mainly due to the base effect as the highest level of export earnings in 2013 was recorded during the month of October.

The largest contribution to the decline in exports in October 2014 was from textiles and garments followed by transport equipment and rubber products, all of which are categorized under industrial exports. Export earnings of textiles and garments declined by 8.7 per cent in October 2014 with the decline in garment exports to the EU and to the USA by 10.1 per cent and 8.4 per cent, respectively.

Meanwhile, export earnings from spices declined continuously due to the lower production in comparison to the previous year. Export earnings from tea also declined due to the decline in both export prices and volumes. However, coconut exports increased by 51.5 per cent mainly led by the significant increase in kernel product exports. Major export destinations during January to October 2014 were USA, UK, Italy, India and Germany accounting for about 50 per cent of total exports.

Trade Balance

The trade deficit in October 2014 widened significantly to US dollars 852 million in comparison to US dollars 352 million in October 2013.

This was mainly due to the base effect as both the highest monthly export earnings and the lowest monthly import expenditure for 2013 were recorded during the month of October 2013.

Meanwhile, the trade deficit during the first ten months of 2014 widened by 4.3 per cent over the corresponding period in 2013.

Earnings from Tourism Tourist arrivals recorded an impressive growth of 13.6 per cent, year-on year in October 2014, with 121,576 tourists arriving during the month. Consequently, the cumulative tourist arrivals in the first ten months grew by 21.5 per cent to 1,228,754 compared to the corresponding period of 2013. Earnings from tourism are estimated at US dollars 176 million in October 2014 in comparison to US dollars 144 million recorded in October 2013. The substantial increase in tourist arrivals as well as the increase in estimated average spending per night resulted in the cumulative earnings from tourism recording a growth of 30.4 per cent to US dollars 1.8 billion during the first ten months of 2014 compared to US dollars 1.4 billion during the same period in 2013.