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August trade deficit widens 32% amid rising imports

09 Oct 2014 - {{hitsCtrl.values.hits}}

By Dilina Kulathunga
The trade deficit widened for the second month in a row as the August trade deficit expanded by 32 percent to US $ 733.2 million, as the country imported more than it did a year ago.

However, the trade deficit for the first eight months contracted by 7 percent to US $ 5.17 billion as the exports grew 15 percent to US $ 7.4 billion, faster than the import growth of 5 percent to US $ 12.6 billion.

According to the country’s external sector performance report released by the Central Bank (CB), the August imports rose 17 percent year-on-year (YoY) to US $ 1.72 billion led by vehicle and fuel imports, as the country needed more refined oil to generate thermal power.

Meanwhile, the August exports managed to continue their upward trend despite at a slower pace of 8.0 percent YoY to US $ 991 million.
As usual, apparel led the export basket with earnings of US $ 429 million, recording a 17 percent YoY increase and contributing over 85 percent of export growth in August.

Despite calls from various quarters pointing out the need for diversification of the export commodities as well as markets, still apparel accounts for nearly 50 percent of total exports. Further, over 50 percent of the markets are still concentrated in traditional US and European markets.

Rubber product exports rose 6.1 percent YoY to US $ 82 million mainly due to tyre exports. Loadstar (Pvt.) Limited is the country’s largest value-added rubber exporter.

Transport equipment exports jumped to US $ 33 million from just US $ 6.2 million a year ago due to the export of a cruise ship.
All in all, industrial exports rose by 12 percent YoY to US $ 748 million.

Meanwhile, perhaps for the first time in the year, tea earnings narrowed 2.8 percent YoY to US $ 139 million, dragging the entire agricultural export basket by 3.1 percent to US $ 239 million.

The import expenditure was largely driven by refined oil imports, motor car and motorcycle imports and rice imports, as the country had to meet the short fall in local production during the year.

Fuel imports rose by 21 percent YoY to US $ 472 million, while vehicle imports rose by 49 percent to US $ 102 million.
Dairy product imports, on a positive note, declined by 16 percent YoY to US $ 24 million in August.
Overall, consumer goods imports rose by 23 percent YoY to US $ 328 million, intermediate goods by 21 percent to US $ 1,062 million and investment goods by 1.0 percent to US $ 334 million.

The lukewarm increase in investment goods imports caste doubts over the pace of domestic construction-related developments claimed to be taking place in the country.

It was only recently the local management consultancy, Gradient Alliance pointed out how higher import tariffs on construction material keep local construction work virtually unmoving.

The balance of payment (BoP) surplus is estimated to have surpassed US $ 2.15 billion as of end-August 2014 in comparison to a deficit of US $ 66 million for the corresponding quarter last year, the CB said.
Meanwhile, the gross external reserves, which measure the strength of the external position, amounted to US $ 9.2 billion, equivalent to 5.9 months of imports.

During August, tourism earnings increased by 22 percent YoY to US $ 203 million, while the earnings for the first eight months rose by 32 percent to US $ 1.45 billion from a year earlier.

The biggest foreign exchange earner, worker remittances, rose by 1.5 percent YoY to US $ 548 million in August, while the eight months’ cumulative flows amounted to US $ 4.5 billion, a 10 percent growth from the corresponding period last year.

The long-term loans obtained by the government during the first eight months amounted to US $ 1.17 billion compared to US $ 1.16 billion.

“Net inflows to the government securities market from January to end-August 2014 amounted to US $ 218 million, which comprised net inflows to Treasury bills and Treasury bonds amounting to US $ 37 million and US $ 181 million, respectively,” the CB said in a statement.

Further, foreign inflows to the Colombo Stock Exchange in August amounted to US $ 28 million compared to US $ 18 million in the same month last year and on a cumulative basis, the bourse received a net foreign inflow of US $ 56.7 million during the first eight months.

The licensed commercial and specialized banks raised a total of US $ 200 million foreign funds during the first eight months.

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August trade deficit widens 32% amid rising imports

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