August trade deficit narrows by more than half as imports decline and exports grow

• Imports fall for six consecutive months in response to tight monetary and fiscal policies

Sri Lanka’s imports fell for the sixth month a in a row in August cutting the trade deficit by more than a half from a year ago after the monetary and fiscal policies were tightened to crush money supply and thereby consumption and investment activities to bring stability to the economy.

According to the external sector data released for August, Sri Lanka’s expenditure on imports fell by 11.9 percent yearon- year (YoY) to US$ 1,486 million, although it staged a slight uptick from the July levels.

August also saw the government further tightening the import controls on around 300 products deemed as nonessential in a bid to retain more foreign exchange for essentials, before partially relaxing the ban in September.

The continuous advances made in the external sector, specially in the merchandise trade account, was cited as one of the reasons by the Monetary Board yesterday when it decided that the current monetary policy stance was appropriate.

The trade deficit fell by more than half in August to US$ 261 million from US$ 586 million in the year earlier period, due to the combined effect of the falling imports and growing exports. Merchandise exports logged a 11.2 percent growth YoY to US$ 1,224 million in August, recording the highest for this year while marking the fourth consecutive month of over a billion dollar export earnings.

The merchandise exports were largely supported by textiles and garment exports which rose by 14.9 percent in the year to US$ 566.9 million in August.

Imports in August were also largely driven by the corresponding imports of textiles and related articles which rose by 11.8 percent YoY to US$ 269.7 million.

The country’s fuel bill expanded by 10.2 percent YoY to US$ 388.6 million and food and beverage imports rose 17.2 percent to US$ 139.7 million. Due to months-long progress made in both expanding the exports incomes and shrinking the imports expenditure, the country saw its cumulative trade deficit contracting to US$ 3,899 million from US$ 5,507 million in the same period in 2021 on the back of cumulative imports of US$ 12,801 million and cumulative exports of US$ 8,902 million, compared to US$ 13,411 million and US$ 7,904 million recorded respectively in the corresponding period last year.

The Central Bank estimates imports to decelerate to around US$ 1.2 billion in September and merchandise exports to record US$ 1.1 billion.