Export growth outpaces imports in May

• Exports grow 10% to US$ 924mn; imports increase 7.7% to US$ 1.9bn
• May trade deficit at US $ 933mn; trade deficit in first 5 months hit US $ 4.9bn
• Fuel and vehicle imports weighing on import bill as policy makers grapple with options

Sri Lanka’s deficit in the trade account has been on a continuous expansion, but the pace at which it grew during the month of May decelerated after many months, as the country’s goods exports grew faster than its imports bill. 

The exports in May led by industrial goods grew by just shy of 10 percent to US$ 924 million from the same month in 2017, while the imports—driven mostly by fuel—grew by 7.7 percent to US$ 1.9 billion, digging a hole of US$ 933 million in the trade account compared to US$ 884 million deficit a year ago. 

Meanwhile, for the first five months of the year, Sri Lanka had a US$ 4.9 billion trade deficit by importing goods worth of US$ 9.6 billion, up 11.8 percent year-on-year (YoY) and exporting goods worth of US$ 4.7 billion, up just 6.7 percent YoY. 

May’s exports were mainly driven by industrial exports, led by textiles and garments—Sri Lanka’s largest export commodity. 

Earnings from textiles and agreement exports rose by 10.9 percent YoY to US$ 398.3 million while the first five months’ exports rose by 4.0 percent YoY to US $ 2.1 billion. 

Export earnings from petroleum products increased by as much as 70 percent YoY to US$ 46.1 million due to the, “combined effect of high exported volumes of bunker and aviation fuel together with increased export prices”, the Central Bank said in a statement. 

Earnings from food, beverages and tobacco exports also increased notably during the month of May owing to the increase in manufactured tobacco and coconut related products. Such exports grew by 26.2 percent YoY to US$ 38.5 million. Meanwhile, all categories of agricultural exports, barring spices and seafood, declined in May. The aggregate earnings from agriculture exports for the month stood at US$ 209.6 million, down 5.9 percent YoY. 

Spices and seafood exports increased from the combined impact of higher prices and volumes exported. 

According to the Central Bank, tea exports declined by 7.9 percent YoY to US$ 121.2 million in May, owing to the reduction in both volumes and prices. 

With regard to imports, the Central Bank singled out fuel and vehicle imports as key factors for the higher import bill in May. 

Gold imports have retreated after the imposition of heavy tax on imports in mid-April.  

Sri Lanka’s fuel bill for the month was US$ 348.9 million, up 61.8 percent YoY, of which refined petroleum and crude oil composed of US$ 233 million and US$ 116 million, respectively.  

The Central Bank cited both higher global oil prices and volumes imported as the reasons for the elevated oil bill. 

For the first five months, the total oil bill of the country was US$ 1.8 billion, up 23 percent YoY.

The non-fuel imports have declined marginally, the Central Bank said, stressing the notable contribution made by fuel to the country’s imports bill.  Meanwhile, in May, Sri Lankans expensed US$ 150 million for importation of vehicles, up 120 percent YoY, bringing the total amount spent on vehicle importation during the first five months to US$ 666 million, an 111 percent increase YoY. 

It is widely expected that the Central Bank would bring macro-prudential measures to arrest the toxic impact on external account and other sectors of the economy through excessive amounts of vehicle imports. 

As bank credit flows profusely into vehicle imports and other non-productive areas, the Central Bank recently said the relationship between growth in credit and economic growth is getting increasingly blurred in Sri Lanka. 

Meanwhile, the food and beverage imports have declined by 21.1 percent YoY to US $ 129 million in May, demonstrating the impact of higher cost of imports largely due to rupee depreciation against the US dollar. 

As of July 20, Sri Lanka’s rupee had depreciated 4.5 percent against the US dollar. Meanwhile, the expenditure on gold imports, which increased considerably since early 2016, declined notably to US$ 0.1 million. In May, last year, Sri Lanka has imported gold worth of US$ 36 million. 

Further, import expenditure on machinery and equipment and transport equipment also declined demonstrating a slowdown in construction and other economic activities in the country.