Workers’ remittances, tourism earnings improve in March
The trade deficit continued to remain modest in March 2023, compared to a year ago, though it widened notably compared to February 2023. Workers’ remittances and earnings from tourism recorded a notable improvement in March 2023. Meanwhile, the exchange rate appreciated notably in March 2023 supported by improved market sentiments towards the finalisation of the IMF-EFF arrangement and improvements in liquidity conditions in the domestic foreign exchange market driven by policy relaxation allowed by the Central Bank.
Foreign investors have shown an increased appetite for government securities, while net foreign investments to the Colombo Stock Exchange (CSE) recorded a marginal net outflow during March 2023.
The deficit in the merchandise trade account narrowed to US dollars 412 million in March 2023, from US dollars 761 million in March 2022, mainly due to the subdued level of imports, compared to a year earlier. However, the trade deficit in March 2023 widened significantly, compared to February 2023, reflecting the increase in imports due to seasonal demand. The cumulative deficit in the trade account during January-March 2023 was US dollars 861 million, which is a decline from US dollars 2,397 million recorded over the same period in 2022.
The merchandise exports recovered in March 2023 recording over USD 1 Bn for the first time during 2023. However, earnings from merchandise exports declined marginally by 2 % in March 2023, year-on-year, to USD 1,037 million. The decline in earnings from industrial exports, including garments, mainly contributed to the decline in export earnings in March 2023, compared to a year earlier. Meanwhile, export earnings have improved on a month-on-month basis mainly due to higher exports of gems, diamonds and jewellery and rubber products. Cumulative export earnings during January-March 2023 were recorded at US dollars 2,998 million, a decline of 7.9 % over the same period in the last year.
Earnings from the exports of industrial goods declined in March 2023, compared to March 2022, with a significant share of the decline being contributed by garments. Earnings from the export of agricultural goods increased in March 2023, compared to a year ago, mainly due to the increase in earnings from tea, spices (primarily, cinnamon and cloves) and seafood (primarily, processed fish). Earnings from tea exports improved due to the increase in average export prices of tea although the volume continued its declining trend owing to the lagged effect of fertilizer shortages.