Trade deficit hits 12-year low in 2022 amid sharp decline in imports

• Trade deficit in 2022 narrows to US$ 5.1bn from US$ 8.1bn in 2021
• Cumulative exports in 2022 at US$ 13.1bn; imports at US$ 18.2bn
• Textile and garments exports hit almost US$ 6bn
• December 2022 exports down as demand continues to slow in major export markets
• Cumulative fuel bill at US$ 4.9bn, up 42.5% as a result of increased refined petroleum products prices  

Sri Lanka’s trade deficit hit a 12-year low in 2022 as a result of resilient export performance, particularly industrial exports, and the sharp decline in import expenditure amid moves to restrict non-urgent imports. 
Accordingly, the deficit in the trade account in 2022 narrowed to the lowest level since 2010 to US$ 5.1 billion from US$ 8.1 billion recorded in 2021.
Earnings from exports in 2022 topped US$ 13.1 billion per year for the first time, recording an increase of 4.9 percent from the previous highest recorded in 2021.

This improvement was a result of increased earnings from industrial exports, including garments, gems, diamonds and jewellery, machinery and mechanical appliances and petroleum products.
Meanwhile, total import expenditure in 2022 amounted to US$ 18.2 billion recording a decline of 11.4 percent Year-on-Year (YoY). This resulted from measures to restrict non-urgent imports and liquidity constraints that prevailed in the market for the most part of 2022.

Merchandise exports in 2022 were mainly driven by textile & apparel exports, which accounted for about 45 percent of total exports, and gem, diamond and jewellery exports.
Textile & apparel exports rose 9.5 percent YoY to US$ 5.95 billion in 2022 while gem, diamond and jewellery exports increased 62.8 percent YoY to US$ 450.6 million.

However, similar to the last couple of months, textile and apparel exports recorded a decline of 9.7 percent YoY to US$ 481.5 million in December 2022 due to slowing demand in major export markets amid high inflation and recessionary fears.
As a result, the overall exports in December 2022 recorded 7.7 percent YoY decline to US$ 1.06 billion.
Agricultural exports in 2022 fell 5.9 percent YoY to US$ 2.56 billion as tea exports fell 5 percent YoY to US$. 1.25 billion.

Meanwhile, the expenditure on merchandise imports declined by 36.4 percent YoY in December 2022 to US$ 1.42 billion continuing the YoY declining trend observed since March 2022.
The Central Bank said the higher base in December 2021 and declines in volumes across all major categories resulted in this outcome.

Expenditure on the importation of consumer goods declined in December 2022, compared to December 2021, mainly due to the decline in non-food consumer goods imports, driven by the reduction in the import of medical and pharmaceuticals.
In addition, almost all other non-food consumer goods declined, partly due to the measures to restrict non urgent imports.

Expenditure on the importation of intermediate goods declined in December 2022, compared to a year ago, driven by lower imports of base metals and textiles and textile articles.
Expenditure on fuel, the largest import component under this category, also recorded a decline, with declines in expenditure on refined petroleum and coal, mainly due to lower volumes imported, compared to December 2021.
As a result, the December 2022 fuel bill fell 13.3 percent YoY to US$ 383.5 million. However, the full year fuel bill rose 30.8 percent YoY to US$ 4.89 billion as a result of 42.5 percent YoY increase in refined petroleum imports.

The import expenditure on fertiliser also increased significantly by 213.8 percent YoY to US$ 115.8 million in December 2022 due to higher import volumes. For the full year such imports rose 74.4 percent YoY to US$ 275.9 million. 

Meanwhile, foreign investments in the government securities market and Colombo Stock Exchange (CSE) recorded a notable net inflow during 2022 compared to the net outflow in 2021. 
Foreign investments in the government securities market recorded a cumulative net inflow of US$ 51 million during 2022, with a marginal net inflow in December 2022. 
On a cumulative basis, the Colombo Stock Exchange (CSE), including primary and secondary market transactions, recorded a net inflow of foreign investments amounting to US$ 182 million during 2022. 

The foreign inflows to the CSE, including primary and secondary market transactions, recorded a notable net inflow in December 2022.
Earnings from tourism are estimated at US$ 1.13 billion in 2022, compared to US$ 507 million in 2021. Earnings from tourism in the month of December 2022 are estimated at US$ 127 million, in comparison to US$ 81 million in the previous month and US$ 233 million YoY.

However, workers’ remittances moderated in 2022 to US$ 3.78 billion compared to US$ 5.49 billion 2021. 
Meanwhile, the Central Bank said gross official foreign reserves stood at US$ 1.9 billion at the end of 2022, including the US$ 1.4 billion Chinese swap, which is subject to conditionalities on usability. 
It also said the exchange rate continued to remain stable through December 2022, following the introduction of daily permissible band from mid-May 2022. The annual depreciation of the rupee in 2022 was 44.8 percent against the US dollar.