The Trade Deficit Falls 24pct in January 2013. Fall in Export Earnings is a Worry

02nd April 2013, www.island.lk

The trade deficit fell 24 percent year-on-year to US$ 780.4 million in January 2013 from US$ 1,026.8 million a year earlier, but the worrisome trend in export earnings continue, with earnings falling 18.2 percent to US$ 726.7 million in January, down from US$ 888.2 million a year ago, data released by the Central Bank yesterday (02) showed.

The import bill fell 21.3 percent to US$ 1,507.2 million with petroleum imports falling 47.6 percent to US$ 269.7 million.

Tea export earnings fell 2.8 percent to US$ 101 million. Garment exports fell 8.9 percent to US$ 333.9 million.

The fall in export earnings is a worry, economists point out.

After growing nearly 100 percent in 2011, the country’s trade deficit declined by 4.1 percent in 2012 to US$ 9,313 million as at end December from US$ 9,710 million a year earlier. Imports fell 5.8 percent to US$ 19,086.5 million while export earnings fell 7.4 percent to US$ 9,773.5 million. Export earnings at 30.58 percent of GDP in 2001, declined gradually to 16.44 percent last year.

Releasing the ‘External Sector Performance review for January 2013 yesterday (02), the Central Bank said: "The trade deficit continued to narrow and recorded a 24 per cent year-on-year decline in January 2013. The policy measures implemented early in 2012 to discourage non-essential imports have continued to ease pressure on the trade deficit and therefore on the current account balance. The policy measures adopted have therefore helped withstand the adverse impact of the slowing down of global demand on exports. Inflows on account of exports of services remained favourable in January 2013, further supporting the current account, while total reserves were maintained at healthy levels, strengthening the overall balance of the BOP.

"Expenditure on imports declined by 21.3 per cent, year-on-year, to US dollars 1,507 million in January 2013, reflecting the effectiveness of the policies introduced early in 2012 to curb import expenditure. Imports of refined petroleum declined by 58.4 per cent, year-on-year, in January 2013, partly due to increased hydro power generation. Lower expenditure on imports of transport equipment, gold and vehicles also made a significant contribution toward the decline in import expenditure in January 2013. However, expenditure on imports of certain intermediate goods such as chemical products, agricultural inputs, plastic and articles thereof and wheat and maize which accounted for about 11 per cent of imports, increased on a year-on-year basis in January 2013.

"Import expenditure on investment goods also declined on a year-on-year basis in January 2013, as imports of transport equipment and machinery and equipment declined. Nevertheless, import expenditure on building materials, categorised under investment goods, increased in January 2013. With respect to consumer goods imports, expenditure on imports of food and beverages as well as non-food consumer goods declined. Vehicle imports, which declined by 51.7 per cent, year-on-year, made the largest contribution towards the
decline in expenditure on consumer goods imports.

"As demand for exports remained fettered by the slow recovery of major export destinations, namely, the EU and the USA, the decline in export earnings continued into 2013. Earnings from exports declined by 18.2 per cent to US dollars 727 million in January, as earnings from all major categories of exports declined, on a year-on-year basis.

"The decline was mainly driven by industrial exports which declined by 20.7 per cent. Earnings from exports of textiles and garments declined by 8.9 per cent. Exports of transport equipment, gems, diamonds and jewellary and rubber products were the other categories of export that contributed significantly to the decline in export earnings. Earnings from agricultural exports declined in January 2013, as a result of earnings from both traditional and non-traditional agricultural exports declining.

"Despite exports of tea continuing to fetch favourable prices, the drop in demand from main markets led to a decline in earnings from tea exports in January. However, export earnings from green tea, although its share remains low, recorded an year-on-year increase. While the price of natural rubber has decreased globally, the decline in volumes of rubber exports could be attributed partly to the demand from local manufacturers of rubber based products.

"Of non-traditional agricultural exports, earnings from the export of spices increased in January 2013, led mainly by the commendable performance of pepper and cloves exports. Further, earnings from the export of unmanufactured tobacco increased marginally in January 2013," the Central Bank said.