14 September 2021 03:24 am Views - 165
Sri Lanka’s trade deficit continued to expand in July 2021 from a year ago levels, as imports surged surpassing the increase in exports, amid the rise in global commodity prices and higher imported volumes.
Sri Lanka spent US $ 1,710 million on imports in July, up 32.2 percent year-on-year (YoY), while earning US $ 1,104 million from exports, up 1.7 percent YoY, creating a trade deficit of US $ 607 million, nearly thrice the US $ 209 million deficit in the same month in 2020, when the global oil prices were lower and overall imports were just recovering.
The cumulative seven-month deficit in the trade account hit US $ 4,922 million, compared to US $ 3,471 million in the same period last year, when the imports were less, due to the worst contraction in the economy, which slashed consumption and investment activities.
As the economy recovered in 2021, supported by brief returning of normalcy during the first three to four months, which was further supported by the lower interest rates, it stoked higher demand for imported goods in all three key categories from consumer to intermediate to
investment type.
However, as the restrictions on economic activities and lockdowns were reimposed from around mid-April, to stem the virus resurgence, the importers, who grew skittish, started front-loading certain imports, amid the slowdown in foreign inflows.
As a result, Sri Lanka’s imports in the first seven months surged by 30.7 percent to US $ 11,725 million, compared to the exports, which rose by 23.7 percent to US $ 6,803 million in the corresponding period in 2020, as exports continued their recovery from the April depths.
Unlike the imports, the export growth in July was based on higher prices, which outpaced the decline in export volumes. For instance, the export volume index declined by 4.2 percent while its value index rose by 6.1 percent in July from a year ago.
However, one area of concern highlighted repeatedly in Sri Lanka’s two-way trade data was its terms of trade, which remain unfavourable towards Sri Lanka, as the increase in export prices continuously lags the
import prices.
For instance, terms of trade—the ratio of price of exports to price of imports—deteriorated in July by 11.6 percent from a year earlier.
The Central Bank last week reined in on some 623 products by imposing 100 percent cash margin requirement for imports, which include electrical and high technology goods types such as mobile phones, televisions, refrigerators and air conditioners, among others.
During the seven months, imports of home appliances have surged by 77.9 percent YoY while in July alone, that number soared by 173.1 percent YoY, reflecting clear evidence of front-loading, due to increased uncertainty in the foreign exchange market.
However, the key product categories, which contributed to the expansion of the seven-month trade deficit, were fuel imports, machinery and equipment, textile and textile articles, base metals and chemical products.
From the exports side, the decline in minor agricultural products, vegetables and leather, travel goods and footwear, contributed the most towards the sluggish export earnings.
In July, however, Sri Lanka imported less volumes of fuel, although the country spent US $ 256 million or 27.8 percent higher than last year, due to more than US $ 20 increase in the price of a crude oil barrel between the two periods.
The cumulative spending on oil imports for the first seven months reached little over US $ 2.0 billion, up by a significant 41.5 percent YoY.
Meanwhile, textile and garment exports, Sri Lanka’s largest export commodity, slipped 3.2 percent YoY in July to US $ 454.1 million, due to the decline in exports to the European Union and United Kingdom but the seven-month export earnings rose by a robust 21.9 percent YoY to US $ 2,941.5 million.
Tea, Sri Lanka’s largest agricultural export commodity, generated earnings of US $ 115.1 million in July, a decline of 12.1 percent YoY but the seven-month export earnings were still up by 9.0 percent YoY to US $ 765.7 million.