Lanka's external sector performance stable

Sri Lanka's external sector remained stable with continued inflows being recorded in the balance of payments (BOP). Cumulative foreign inflows to the country from tourism, workers' remittances, foreign direct investments (FDI) and investments in Government securities grew during the first half of 2013, a media release from the Central Bank said.

Commercial banks and the corporate sector raised more foreign funds this year, given the stable macroeconomic environment and further relaxation of exchange control regulations. The trade balance also continued to narrow with exports recording an increase on a year-on-year basis in June 2013.

Earnings from exports and expenditure on imports recorded significant growth on a year-on-year basis in June 2013. Earnings from exports grew by 6.8 percent in June 2013 to $ 807 million. Expenditure on imports increased by 15.3 percent to 1,636 million in June 2013. However, on a cumulative basis, earnings from exports and expenditure on imports continued to decline by June.

While earnings from exports during the first half of 2013 declined by 4.5 percent, expenditure on imports during this period declined by 5.8 percent. The deficit in the trade account for the first six months of 2013 declined by 7.1 percent to $ 4,557 million.

The largest contribution to the growth in exports in June 2013 came from the significant increase in exports of textiles, garments and tea. Earnings from exports of textiles and garments, which account for more than 40 percent of total exports, increased by 14.9 percent, year-on-year.

Garment exports to the USA increased by 24.8 percent, year-on-year, while garment exports to the EU increased by 6.7 percent, year-on-year, in June 2013. Earnings from exports of machinery and mechanical appliances increased by 25.5 percent, led by increased exports of electrical machinery and equipment and home appliances.

Earnings from exports of rubber products also increased by 7.7 percent to $ 69 million, led by increased exports of retreaded tyres; bicycle, motor cycle and motor car tyres; and rubber gloves.

Agricultural exports, which account for about a quarter of export earnings, also increased on a year-on-year basis, reflecting the strong performance of the tea sector.

Earnings from tea exports increased by 14.5 percent in June 2013 with a 4.7 percent increase in the export volume of tea coupled with an increase of around 9 percent in the average export price of tea.

Higher earnings from spice exports were propelled by better performance of commodities such as cloves and nutmeg. Earnings from sesame seeds and arecanuts categorised under minor agricultural products increased significantly due to large volumes exported.

Expenditure on imports increased significantly in June 2013 mainly due to higher expenditure on fuel imports. The average import price of crude oil rose by 9.0 percent, year-on-year, to $ 105.25 per barrel in June 2013, while the import volume of petroleum in June 2013 was also significantly higher on a year-on-year basis due to increased imports of crude oil.

On a cumulative basis however, expenditure on fuel imports during the first half of 2013 has recorded a year-on-year decline.

Expenditure on non-fuel imports during June 2013 increased at a moderate rate of 3.5 percent, year-on-year, to $ 1,054 million.

Import expenditure on fertiliser, which had continued to record year-on-year declines since the latter part of 2012, also increased substantially in June 2013, due to higher volumes imported to meet demand.Among other imported items that contributed significantly to the increased import expenditure in June 2013 were vehicles, classified under consumer goods. Increased imports of vehicles could be attributed mainly to the recent appreciation of the rupee against several currencies including the Japanese yen, due to cross currency movements.

Expenditure on textiles and textile articles, classified under intermediate goods, which account for about a tenth of total import expenditure, declined in June 2013, negating to some extent, the impact of the increased expenditure.

Earnings from Tourism in the Services Account of the BOP earnings from tourism recorded sound growth. Earnings from tourism grew by 29.0 percent, year-on-year, in June 2013 to $ 81 million, from the $ 63 million recorded in June 2012, the release said.