July trade deficit widens by US $ 245mn YoY

• Merchandise export earnings decline by 12.4% YoY to US $ 1.02mn
• Import expenditure expands by 7.8% YoY to US $ 1.38bn
• Workers’ remittances increase to US $ 541mn
• Tourism earnings estimated at US $ 219mn

Sri Lanka’s trade deficit widened significantly by US $ 245 million in the month of July, due to the combined impact of relatively low export earnings and high import expenditure, the provisional data from the Central Bank showed. 
The external sector performance report released for July yesterday shows that the trade deficit expanded to US $ 367 million, from US $ 122 million recorded in the corresponding month in 2022. However, due to lower imports, the cumulative deficit in the trade account for the January to July 2023 period contracted to US $ 2.65 billion, from US $ 3.62 billion for the same period in 2022. 

Earnings from merchandise exports declined by 12.4 percent in July 2023, over the corresponding month in 2022, to US $ 1.02 million. The drop in earnings came from industrial exports, including garments, due to the slowing external demand. Although the export earnings show an increase when compared with June 2023, the cumulative export earnings from January to July 2023 contracted by 10.3 percent over the same period last year, amounting to US $ 6.89 million. 
Import expenditure grew in July 2023 by 7.8 percent year-on-year (YoY) to US $ 1.38 billion. In July 2022, import expenditure stood at US $ 1.28 billion. 
The analysis by the Central Bank’s Economic Research Department shows the expenditure of consumer goods and investment goods contributed to the increase in import expenditure amidst the decline in expenditure on intermediate goods imports. 
Meanwhile, the cumulative import expenditure from January to July 2023 declined by 15.6 percent over the corresponding period last year, amounting to US $ 9.54 billion. 
The Central Bank noted that the relaxation of import restrictions, which commenced in June 2023, could gradually generate higher import expenditure in the period ahead, once the demand conditions improve in the economy. 

The terms of trade deteriorated by 0.4 percent in July 2023, compared to July 2022, as the decline in the prices of exports surpassed the decline in the prices of imports. 
Meanwhile, the workers’ remittances increased notably to US $ 541 million in July 2023, in comparison to US $ 279 million in July 2022. The provisional data shows that the total departures for foreign employment during January to July 2023 and departures in July 2023 amounted to 171,015 and 24,578, respectively. Total annual departures for foreign employment in 2022 was 311,056.  Revenue from tourism in July 2023 is estimated at US $ 219 million, a 78 percent increase when compared with the corresponding month in 2022. Earnings from tourism during January-July 2023 amounted to US $ 1.09 billion, compared to US $ 765 million in the corresponding period in 2022. India, Russia, the United Kingdom, Germany and France were the main source countries for tourist arrivals to Sri Lanka.  Further, foreign investment in the government securities market recorded a net outflow of US $ 38 million in July 2023, despite a cumulative net inflow of US $ 388 million from January to July 2023. Foreign inflows to the Colombo Stock Exchange, including both primary and secondary market transactions, recorded a net inflow of US $ 9 million during January-July 2023.  Gross official reserves increased to US $ 3.8 billion by end-July 2023, compared to US $ 1.8 billion recorded as at end-July 2022. The Central Bank supplied US $ 13 million to the domestic foreign exchange market on a net basis during the month. Overall, the Central Bank has purchased more than US $ 2 billion, on a gross basis, during January-July 2023.