Trade deficit expands for second consecutive month in June amid rising imports

• Trade account records US$ 364mn deficit in June 2023, contrasting with US$ 22mn surplus a year ago
• First-half 2023 cumulative trade deficit narrows to US$ 2,289mn compared to US$ 3,506mn last year
• Earnings from merchandise exports decline 19.5% in June, with industrial and agricultural exports impacted
• Merchandise import expenditure up 11.6% to US$ 1,369mn in June 
• Cumulative import expenditure in first half of 2023 down 18.6% to US$ 6,522.2mn
• CB says import restrictions relaxation may result in higher import expenditure in future

Sri Lanka’s trade deficit expanded for the second consecutive month in June on a Year-on-Year YoY  basis with imports rising for the second straight month while exports continued to be on a declining trend.
The deficit in the trade account expanded to US$ 364 million in June this year, from US$ 22 million surplus recorded a year ago at the height of foreign exchange crisis.  However, on a month-on-month (MoM) basis, trade deficit contracted by around US$ 83 million in June from US$ 447 million recorded in May.
Meanwhile, the cumulative deficit in the trade account during the first half of 2023 narrowed to US$ 2,289 million from US$ 3,506 million recorded in the first half of last year.

Earnings from merchandise exports declined by 19.5 percent YoY in June this year to US$ 1005 million while remaining above the US$1 billion mark for the second consecutive time.
Industrial export earnings declined by 20.2 percent YoY to US$ 790.8 million in the month due to a broad-based decline in earnings from most of the industrial products led mainly by textile and garments exports.
Exports of textile and garments to most of the major markets (USA, EU and UK) continued to record declines, resulting from subdued demand conditions in major markets. Such exports in June fell 24.4 percent YoY to US$ 430 million.
Earnings from agricultural exports also declined by 16 percent YoY to US$ 211.3 million in June 2023, driven by lower export volumes of sea food (primarily, fresh and frozen fish), and coconut related products (primarily, desiccated coconut, coconut oil and fibres).
Earnings from mineral exports declined by 61.6 percent YoY to US$ 1.1 million in June 2023, mainly due to the decline in exports of earths and stone; and ores, slag, and ash.
Cumulative export earnings during January to June 2023 also declined by 10 percent YoY to US$ 5, 871 million over the same period the last year.
Meanwhile, merchandise import expenditure rose by 11.6 percent YoY to US$ 1,369 million in June 2023, compared to US$ 1,226 million a year ago. The increase in import expenditure was observed across all main categories of imports, which was supported by the significantly low base in June 2022.
With the relaxation of import restrictions coming into effect from June and July 2023, the CB noted that it could gradually result in higher import expenditure in the period ahead.
However, import expenditure declined on MoM in June this year compared to US$ 1,466 million recorded in May.
Expenditure on the importation of consumer goods rose by 42.6 percent YoY to US$ 251.7 million in June 2023, driven by the increases in expenditure on both food and non-food consumer goods.

Expenditure on food and beverages increased due to the increase in import volumes of sugar; 
oils and fats (primarily coconut oil); and vegetables (primarily lentils). 
Meanwhile, the increase in expenditure on non-food consumer goods was due to the import of medical and pharmaceuticals import, telecommunication devices (mainly, mobile telephones), and cosmetics and toiletries. 
However, the drop in imports of cereals and milling industry products (mainly, rice); and spices (mainly, chillies), which were categorised under food and beverages and clothing and accessories; and household and furniture items, which were categorised under non-food consumer goods was notable. 
Expenditure on the importation of intermediate goods also increased by 7.3 percent YoY to US$ 875 million in June 2023, compared to a year ago, mainly driven by the imports of fuel and base metals (mainly, iron and non-alloy steel). The fuel bill rose by 44.9 percent YoY to US$ 290 million in June 2023.
Import expenditure on investment goods in June recorded the first YoY increase since February 2022. Accordingly, investment goods imports rose by 2.5 percent YoY to US$ 239.9 million in the month. 
The increase in imports of machinery and equipment (primarily, machinery and equipment parts, turbines, and telecommunication devices) mainly contributed for this increase. 
In addition, expenditure on the importation of building material increased marginally, while import of transportation equipment recorded a decline in June 2023. The cumulative import expenditure during the first half of 2023 declined by 18.6 percent YoY to US$ 6,522.2 million over the corresponding period of 2022.