No, this is not an April Fools’ Day Joke. Sri Lanka’s trade deficit contracted in January 2011 on the back of a surge in export earnings, driven by the post GSP Plus apparels sector, while imports grew at a much slower pace, according to official external sector data released yesterday (31). Apparel exports to the EU had increased sharply, up 143.5 percent, without the GSP Plus trade concession which was withdraw last August.
The trade deficit for January 2011 reached US$ 687.6 billion, down 10.2 percent from US$ 765.9 million a year ago.
Export earnings in January 2010 increased sharply, up 72.4 percent to US$ 813.4 million from US$ 471.7 million a year ago. Earnings from apparel exports grew 121.9 percent to US$ 385.4 million from US$ 173.7 million, the Central Bank said, releasing its External Sector Review for January 2011.The import bill grew at a much slower pace, up 21.3 percent to US$ 1,501.1 million in January 2011 from US$ 1,237.7 million a year earlier.
Sceptics...
Central Bank Deputy Governor Dharma Dheerasinghe earlier this week told a public forum that exports had increased by 72.4 percent year-on-year in January and that the trade deficit had contracted, but many were sceptical as it was an unusual trend. Even a top official close the government said he was surprised to hear Dheerasinghe make such a statement saying, ‘Let’s wait for the official data’. So, here it is; the official data.
Exports...
"The largest contribution to the growth in exports in January 2011 was from the industrial sector, reflecting increases in all major categories of industrial exports. Continuing the increasing trend observed since the withdrawal of the GSP+ scheme in August 2010, earnings from textile and garment exports increased by 121.9 percent to US$ 385 million in January 2011, depicting a 143.5 percent increase to EU and 95.8 per cent increase to USA," the Central Bank said.
"Exports of rubber products increased by 118.7 percent, year-on-year, reflecting higher levels of domestic value addition, particularly in the form of solid tyres and rubber gloves. Other key categories of industrial exports such as food, beverages and tobacco, machinery and equipment and petroleum based products also performed well in January 2011," it said.
"Earnings from agricultural exports grew by 28.9 percent to US$ 184 million in January 2011, recording a healthy growth in all major sub sectors mainly due to higher prices. The average export prices of tea and rubber remained high at US$ 4.79 per kg and US$ 4.89 per kg, respectively. However, rubber export volumes declined mainly due to tightened supply as well as the increased demand from the domestic industries for the manufacture of rubber based products.
Earnings from minor agricultural exports increased by 20.5 percent to US$ 31 million in January, 2011 mainly due to higher prices fetched by cocoa products, essential oils and unmanufactured tobacco and increased volumes of fruits, cinnamon and vegetables."
Imports..
"Expenditure on imports of intermediate goods increased 15.7 percent to US$ 812 million in January 2011. The average import price of crude oil increased by 22.6 percent to US$ 95.33 per barrel in January 2011, though import volume declined, the Central Bank said.
The oil bill for January declined 10.4 percent in January 2011 to US$ 364.9 million from US$ 407.1 million a year earlier.
"Imports of textiles increased by 55.2 percent in January 2011 indicating a better outlook for the garment industry. Expenditure on fertilizer imports also increased in January 2011, mainly due to higher import volumes.
"Expenditure on imports of consumer goods increased significantly during the month of January 2011 led by non-food consumer goods, particularly, motor vehicles and electrical equipment. Import expenditure on food and drink also increased with the upward trend in food prices of sugar, wheat grain and milk products in the international market. All sub categories of investment goods imports increased in January 2011," it said.
Reserves...
Worker remittances had increased 20.1 percent to US$ 377 in January 2011 from US$ 313.1 million a year earlier but were not enough to cover the trade deficit.
"Gross official reserves continued to remain above the targeted level and stood at US$ 6.7 billion by end February 2011 without Asian Clearing Union (ACU) balances. Based on the previous 12-month average expenditure on imports of US$ 1,167 million per month, the gross official reserves without ACU balances were equivalent to 5.8 months of imports," the Central Bank said.
Outlook...
Last January, the Central Bank said the Balance of Payments would record a US$ 350 million surplus in 2011. FDIs in 2010 are estimated at US$ 500 million, reflecting declining global capital flows, but FDIs and inflows to the private sector are expected to reach US$ 1.5 billion this year. However, the IMF estimates FDI inflows to reach US$ 900 million this year.
Long term inflows to the government this year are expected to reach US$ 1.7 billion.
The relaxation of exchange controls and improving investment climate would also attract portfolio investments in to the country. Steps have been taken by the government to improve Sri Lanka’s sovereign ratings and also improve its World Bank Doing Business ranking from the current 102nd position out of 183 countries to 30th by 2016.
The rupee which appreciated 3.2 percent against the dollar is expected to appreciate further this year if the expected foreign currency inflows materialise.
This is expected to make imports less expensive and would be a benefit as oil prices continue to increase.
Also, a stronger rupee would help the government meet its foreign debt servicing obligations at a lower cost, thus helping to maintain fiscal discipline so that it would not add pressure on inflation through domestic borrowings as it did in the past.
However, exporters complain of loss of competitiveness as the rupee strengthens, but January trade data suggests otherwise.
Related Info :
• Sri Lanka External Sector Performance – January 2011
• Sri Lanka's First Post War Year Achieves GDP Growth Rate of 8pct. 2009 only 3.5pct. Highest Ever Achieved Since Independence was 8.2pct in 1968 & 1978
