Import expenditure records annual decline in March first time in over a year

• Sharp depreciation of rupee against US dollar and tougher import control main reasons 
• Merchandise export income falls 3.4% to US $ 1.06bn though passing US $ 1bn mark for 10th consecutive month
• March trade deficit down to US $ 762mn, from US $ 781mn in February and US $ 832mn recorded a year ago
• However, 1Q trade deficit expands to US $ 2.4bn, from US $ 2.06bn a year ago

Sri Lanka’s trade account saw mixed results in March, with import expenditure recording an annual decline for the first time in over a year, following a sharp depreciation of the rupee and tougher import controls while the growth momentum in exports came to a halt amid regular power cuts and shortage of export inputs.

According to the trade data released by the Central Bank, import expenditure recorded a notable year-on-year (YoY) decline of 5.6 percent in March for the first time since February last year, driven by the sharp depreciation of the rupee and tougher import controls on non-essential goods.

However, the import bill, which moderated to US $ 1.82 billion in the month, only recorded a marginal decline, when compared to US $ 1.87 billion recorded in the previous month, driven by the substantial increase in global fuel prices, due to the Ukraine-Russia war.

 Meanwhile, merchandise export income fell by 3.4 percent YoY to US $ 1.06 billion, driven by sizable declines across all key agri exports as well as declines in key industrial export products, including apparel, due to the widespread power cuts and shortage of export inputs in the month. 

However, merchandise export income managed to surpass the US $ 1 billion mark for the 10th consecutive month.

The terms of trade, which is the ratio of the price of exports to the price of imports, deteriorated by 16 percent in March from a year ago, as the increase in import prices surpassed the increase in export prices.

Consequently, the country recorded a US $ 762 million deficit in the trade account of the balance of payment in March, down from the US $ 781 million deficit recorded in February and US $ 832 million recorded a year ago. 

However, the cumulative deficit in the first quarter of the year widened to US $ 2.4 billion, from US $ 2.06 billion a year ago.   The US $ 435.5 million increase in the fuel bill, US $ 170.3 million increase in textiles and textile articles, US $ 128.4 million increase in cereals and milling industry products as well as the US $ 51.4 million decline in tea export income were some major contributory factors to the deterioration of the cumulative trade deficit in the quarter.

In March, export earnings from industrial goods managed to record a 2.9 percent YoY increase, mainly driven by increased earrings from exports of petroleum products and gems, diamonds and jewellery, which compensated the declines seen in textiles and garments and rubber products.  

Earnings from textile and garment exports marginally declined by 0.6 percent YoY to US $ 464.4 million while export earnings from rubber products fell by 14.5 percent YoY to US $ 81.3 million in the month. Earnings from petroleum exports nearly doubled to US $ 55.5 million, due to the increase in both prices of bunker and aviation fuel exports and volume of aviation exports. Similarly, export earnings from gems, diamonds and jewellery (mainly gems) rose by 38.3 percent YoY to US $ 38.3 million.

Meanwhile, overall export earnings from agricultural goods fell by 22.6 percent YoY to US $ 199.3 million, due to broad-based decreases in export earnings in all subcategories, driven by lower volumes.

The export earnings from tea declined significantly by 24 percent YoY to US $ 94.7 million, due to the decline in both volume and prices with the beginning of the Ukraine-Russia war while production came under pressure, due to the widespread power cuts in the country. 

Earnings from spices also declined by 39.8 percent YoY to US $ 23.2 million in March 2022, due to the lower export volumes of cinnamon, pepper and clove. Further, coconut exports also declined by 10.9 percent YoY to US $ 36.7 million in the month.   Meanwhile, import expenditure on consumer goods in March declined by 25.9 percent to US $ 282 million, driven by a 13.6 percent YoY reduction in food and beverages and a 37.8 percent YoY reduction in non-food consumer goods.

However, there was a notable increase of 1,207.7 percent YoY in cereals and milling industry products, driven by rice exports. The decline in the expenditure on non-food consumer goods was driven by the decline in the importation of telecommunication devices (mainly mobile phones), home appliances (mainly televisions) and medical and pharmaceuticals (mainly medicaments), while clothing and accessories such as footwear and suits recorded an increase.

Expenditure on fuel imports rose by a nearly 50 percent YoY to US $ 519.8 million, accounting for over a quarter of the country’s import expenditure in the month. The non-importation of crude oil, higher average import prices led to the highest monthly expenditure on fuel for the country since March 2012.Expenditure on the importation of investment goods rose by nearly 14 percent to US $ 358.5 million in the month, driven by mainly the declines in machinery and equipment and transport equipment.