Trade gap continues to narrow as imports slip; exports languish

• Jan. 2021 trade deficit at US$ 667mn compared to US$ 730mn in Jan. 2020
• Merchandise exports earnings down 8% to US$ 924mn; apparel exports down 11%
• Agriculture exports see positive start to the year, recording 5.9% YoY increase
• Import expenditure declines 8% to US$ 1.59bn; oil bill up 6.2% to US$ 310mn

Sri Lanka continues to trim the trade account deficit as merchandise imports slip amid the lid on non-essential imports and weak textiles exports, but a higher fuel bill is likely to make a comeback amid rising global crude prices. 

Sri Lanka recorded a trade deficit of US$ 667 million in January 2021, lower than US$ 730 million in the same month in 2020. 

Sri Lanka’s merchandise export earnings for January 2021 were recorded at US$ 924 million, down 8 percent year-on-year (YoY), and the import expenditure declined by 8.3 percent YoY to US$ 1, 592 million.

The decline in exports could be mainly attributed to lower textile and apparel exports to Sri Lanka’s key markets in the US and Europe, largely due to COVID-19 related disruptions to global trade and drop in consumer demand.

Sri Lanka’s Export Development Board (EDB) said Brexit also played a role in lower apparel exports. However, this could be a temporary slowdown, as Britain could strike new and better bilateral trade pacts with various trade partners on its own without seeking ratification from the European Commission, which is a time-consuming affair. 
Accordingly, Sri Lanka’s textiles and apparel exports fell 10.8 percent YoY in January 2021 to US$ 423 million. 
Along with apparel, lower petroleum product exports and gems, diamond & jewellery exports knocked industrial exports down by 11.4 percent YoY.

However, agriculture exports saw a positive start to the year, recording a 5.9 percent YoY increase mainly due to the,  “export of spices, such as cinnamon, pepper and cloves. Earnings from tea exports increased marginally due to the price increase, while the volume exported had declined. The export of coconut fibre, natural rubber and unmanufactured tobacco also recorded marginal increases. Most of the other agricultural export categories recorded a decline in earnings,” a Central Bank statement said. 

Meanwhile, in the imports basket, fuel imports rose 6.2 percent to US$ 309.8 million in January as import quantities of crude and refined petroleum increased while prices started rising with the recovery in the global economy and the supply cuts announced by the OPEC+ members. 

The fuel price averaged US$ 57.65 a barrel in January 2021 compared to US$ 51.89 a barrel during December 2020. In December 2020, Sri Lanka spent US$ 235.1 million on fuel imports.

Meanwhile, the import expenditure also rose on base metals such as iron, steel, copper and related articles, vehicle and machinery parts, plastic and articles in primary forms, certain chemical products, wheat, agricultural inputs (seeds and plants and animal fodder) and rubber in primary forms. 

Expenditure on consumer goods imports declined by 7.0 percent YoY mainly due to the virtually nil importation of personal vehicles. “However, a significant increase of expenditure was recorded on mobile phones, home appliances as well as some other goods in the ‘non-food consumer good category,’ the Central Bank said. 

But the food & beverages imports rose by 24.6 percent to US$ 183.8 million in January due to significant increase in the expenditure on sugar and coconut oil imports. “Imports of lentils and chillies also recorded a sizable increase, while the import cost on most other foods and beverages was lower than in January 2020,” the Central Bank added.