Sri Lankan export earnings extended their losing streak to the month of December, slipping 6.7 percent year-on-year (YoY) to US$ 871 million to end the year 2012 with a negative 7.4 percent growth, with a total export earnings income of US$ 9.7 billion.

However, proving much optimism, the trade balance- the difference between exports and imports of Sri Lanka- contracted by as much as 4.1 percent to end the year with US$ 9.3 billion. This is against US$ 9.7 billion balance of trade reported in 2011.

It was also quite notable that the trade balance contracted sharply by as much as 32 percent YoY in the month of December, due to imports dropping at a faster pace by 19.4 percent to US$ 1.5 billion, than the fall in exports, which dropped by 6.7 percent YoY to US$ 871 million.

In the month of December, the industrial exports (that account for a third of total exports) were the hardest hit with an above 10 percent drop suffered from the corresponding month in 2011.

The subcategory, textiles and garments, recorded a YoY drop of 6.4 percent in the month of December, while losing 4.8 percent earnings for the 12 months to end the year with US$ 3,991.1 million, as if the sector had begun to feel the brunt of losing GSP+. Despite the agriculture export earnings showing some resilience in the month of December, which grew by 2.9 percent YoY, the sector suffered a negative growth of 7.8 percent for the entire year. Tea, the dominant export commodity, could fetch only US$ 1.4 billion, down by 5.3 percent for the full year. Nevertheless, the industry fared better in rupee terms, predominantly supported by the currency devaluation.

Under exports, most notable was the earnings from mineral products, which soared by as much as 383.3 percent YoY in the month of December, while recording a growth of 86.4 percent for the entire year to end with US$ 61.3 million.

On the import front, the expenditure declined by 20 percent YoY in December, whilst the year ended with a total expenditure of US$ 19 billion with a drop of 5.8 percent, predominantly due to lower import expenditure in respect of vehicles.

In the month of December, the expenditure on consumer goods saw its import expenditure declining by as much as 26 percent, whereas the total expenditure under this category came down by 18 percent for the whole of 2012 to the end the year with US$ 2,995.2 million.

 In December 2012, expenditure on intermediate goods imports also declined on a YoY basis by 25 percent. This decline was driven by lower import expenditure of US$ 366.1 million in relation to petroleum, as result of the rains received to catchment areas in the last quarter. This was further supported by lower import expenditure by diamonds, precious and semi-precious stones and mineral products.

Nevertheless, the total fuel import bill rose by 5.1 percent in 2012 to just over US$ 5 billion, which is approximately one quarter of the country’s total import bill. However, the expenditure on import of investment goods demonstrates a YoY increase of 5.1 percent in the month of December, whilst the year to December recorded a growth of 4.8 percent, due to increase in expenditure on machinery and building material. Meanwhile, the Central Bank projects the trade balance to contract to 15.1 percent of the GDP in 2012 from 16.4 percent in 2011.

At present, in Sri Lanka, the imports as a percentage of the GDP stand at 31.5 percent, while the exports as a percentage of the GDP is at 16.5 percent.

The International Monetary Fund has continuously pointed out the falling Sri Lankan exports as a percentage of the GDP since little over a decade where in 2000, the ratio was as high as 32.5 percent.