Trade gap widens for fourth consecutive month in June

• June trade deficit rose to US $ 652mn, compared to US $ 161mn a year ago
• Merchandise import expenditure grew by 57.2% YoY to US $ 1.66b; merchandise export earnings recovered 12.6% to US $ 1.01b
• 1H cumulative deficit widened to US $ 4.32bn, from US $ 3.26bn in 2020
• Largest contributor to deficit widening in 1H was US $ 543.8mn increase in fuel import bill 

The trade deficit continued to widen for the fourth consecutive month in June on a year-on-year (YoY) basis, as imports grew at a faster pace, driven by consumer and investment goods, surpassing the pre-COVID levels, despite a decline in the fuel import bill and import restrictions in place. 

In June, the trade deficit rose to US $ 652 million, compared to the US $ 161 million deficit recorded one year ago, as the expenditure on merchandise imports grew by a record 57.2 percent YoY to US $ 1.66 billion, while the earnings from merchandise exports recovered 12.6 percent YoY to US $ 1.01 billion in the month.

“Both exports and imports were significantly higher in June 2021, compared to June 2020. Considering the first half of the year, although exports recorded a healthy growth, import expenditure increased at a higher pace,” the Central Bank (CB) noted.

The cumulative deficit in the trade account in the first half of the year widened to US $ 4.32 billion, from US $ 3.26 billion reported over the same period in 2020 and from US $ 3.6 billion recorded in the corresponding period in 2019. The high import prices also contributed to the deterioration in the trade account in June. Terms of trade, i.e. the ratio of the price of exports to the price of imports, deteriorated by 16.7 percent YoY in June.

The largest contributing factors for the widening of the trade deficit in the first half of the year were the US $ 543.8 million increase in the fuel import bill, US $ 385.4 million rise in textiles and textile article imports and US $ 376.5 million increase in machinery and equipment in the period.

In June, industrial exports rose by 16.6 percent YoY to US $ 771.4 million with a broad-based increase in export earnings under most of the categories. The textile and garment exports in the month rose by a nearly 3 percent YoY to US $ 415 million while export earnings from rubber products jumped by 40.7 percent YoY to US $ 92.9 million in the month.

Export earnings from petroleum products rose by 147.3 percent YoY to US $ 41.3 million, due to the increase in unit values of bunker fuel along with some improvement in quantities supplied. Despite the ongoing pandemic-related disruptions, the main export segments also recorded increased earnings on a month-on-month basis. Total export earnings from agricultural goods only saw a marginal increase of 0.5 percent YoY to US $ 230.3 million in June. “Earnings from tea exports increased due to improvement in export volumes while the export unit value declined. Further, earnings from exports of coconut (both kernel and non-kernel products), spices (such as pepper and cloves) and unmanufactured tobacco increased. In contrast, there was a decline in export earnings from seafood, minor agricultural products (fruits, arecanuts, betel leaves, etc.) and vegetables (fresh, frozen, dried, preserved, etc.),” the CB noted. Overall, the cumulative export earnings in the six-month period rose to US $ 5.67 billion, from US $ 4.4 billion reported in the corresponding period in 2020. However, it remained below US $ 5.9 billion recorded in the corresponding period in 2019.  In June, the increase in import expenditure was observed across all main categories of imports, namely, consumer goods, intermediate goods and investment goods, although the expenditure on petroleum imports saw a marked decline, due to low import volumes in the month. The expenditure on consumer goods rose by 53.4 percent YoY to US $ 382.2 million in June. The expenditure on food and beverages increased by 61.9 percent to US $ 165.0 million, mainly due to large increases in expenditure on dairy products (mainly milk powder but also cheese and butter) and oils and fats (mainly coconut oil but also other types of oil).  Expenditure on non-food consumer goods increased by 47.6 percent to US $ 217.2 million contributed mainly by medical and pharmaceuticals (mainly vaccines), home appliances (televisions, rice cookers, fans, refrigerators, etc.), mobile phones, rubber tyres and tubes, etc. The import expenditure on intermediate goods rose by 48.5 percent to US $ 839 million in June, despite the 40 percent YoY decline in the expenditure on fuel.
The fuel import bill contracted to US $ 66.3 million in June, due to non-importation of crude oil and low import volumes of other types of petroleum, taking into consideration the availability of sufficient stocks. The expenditure on almost all other types of intermediate goods increased, except fertiliser, mineral products and unmanufactured tobacco, reflecting increased economic activity in the country as well as increased commodity prices in the world market. Meanwhile, the import expenditure on investment goods rose a record 81.1 percent YoY to US $ 436.2 million in June, driven by substantial increases in machinery and equipment, building material and transport equipment imports. On a cumulative basis, total import expenditure in the first half of the year topped US $ 10 billion, from US $ 7.6 billion recorded in the corresponding period in 2020 and surpassing pre-COVID import expenditure   levels seen in the same period of 2019. Meanwhile, workers’ remittances decreased by 16.4 percent YoY to US $ 478 million in June, although workers’ remittances in June remained higher than the US $ 460 million recorded in May this year. During the first half of the year, workers’ remittances grew by 11.6 percent YoY to US $ 3.32 billion. Further, US $ 2 million were recorded as tourism earnings in June. However, cumulative earnings from tourism were down at US $ 23 million during the first half of the year, from US $ 682 million recorded during the same period in 2020.