Trade deficit declines for 5th consecutive month to USD 404 mn

The import expenditure declined, while earnings from exports increased in May 2022, year-on-year, extending the contraction in the trade deficit for the third consecutive month. Meanwhile, tourist arrivals slowed in May 2022.

Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded marginal net inflows during May 2022.

The trade deficit recorded a decline for the fifth consecutive month on month-on-month basis and for the third consecutive month on a year-on-year basis in May 2022, supported mainly by the policy induced moderation of imports, along with the notable growth momentum of exports. The trade deficit narrowed to US dollars 404 million in May 2022 compared to the deficit of US dollars 716 million. On a cumulative basis, the trade deficit narrowed on a year-on-year basis for the first time in May during this year.

Accordingly, the trade deficit during January-May 2022 narrowed to US dollars 3,535 million, from US dollars 3,663 million recorded over the same period in 2021.

Earnings from merchandise exports in May 2022 increased substantially by 17.55 % over the corresponding month in 2021, recording at US dollars 1,047 million.

An increase in earnings was observed in industrial exports, while a decline was recorded in agricultural exports and mineral exports. The cumulative export earnings during January-May 2022 increased by 12.25 over the same period in the last year, amounting to US dollars 5,266 million.

Total earnings from the exports of agricultural goods in May 2022 declined by 4.2%, compared to May 2021. This decline was mainly attributed to exports of tea, spices, unmanufactured tobacco, and vegetables. Export earnings from tea in May 2022 declined by 14.2% (year-on-year), due to the decline in volume of tea exported.

Expenditure on merchandise imports declined to the lowest level since November 2020, recording a decline of 9.7 % in May 2022 to US dollars 1,451 million, compared to US dollars 1,607 million and US dollars 1,699 million recorded in May 2021 and April 2022, respectively.

A decline in expenditure was observed across all main categories, with the imports of investment goods and non food consumer goods contributing the most to this decline.

The policy measures to curtail import expenditure, such as increase in taxes, restricting imports under several payment terms, imposing licensing and margin requirements as well as forex pressures in the banking system resulted in lower imports. However, on a cumulative basis, import expenditure increased by 5.3% (year-on-year) to US dollars 8,802 million during January – May 2022.

Expenditure on the importation of consumer goods in May 2022 declined by 30.2%, compared to May 2021, contributed mainly by a reduction of 11.4% in food and beverages and of 47.45 in non-food consumer goods.

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Gross official reserves stood at US dollars 1.9 billion as at end May 2022. This included the swap facility from the People’s Bank of China, equivalent to around US dollars 1.5 billion, which is subject to conditionalities on usability.

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Workers’ remittances increase

Workers’ remittances increased to US dollars 304 million during May 2022, in comparison to US dollars 249 million in the previous month and US dollars 460 million in the corresponding month in the previous year.

This increase in workers’ remittances can mainly be attributed to the stability observed in the domestic foreign exchange market, along with the narrowing of the gap between the grey market and official exchange rate.

Meanwhile, total departures for foreign employment were recorded at 22,194 during the month of May 2022, contributed by the unskilled (7,453), skilled (6,947) and domestic aid (4,793) categories.

Total departures for foreign employment during January-May 2022 were recorded at 113,757, compared to 26,450 in the corresponding period of the previous year and 117,952 in 2021.

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Exchange rate stabilises

A greater stability in the exchange rate was observed since the introduction of the new exchange rate arrangement since May 13 2022.

Accordingly, from May 13, 2022 to date, the Sri Lanka rupee recorded a marginal depreciation against the US dollar, while recording a depreciation of 44.5 % against the US dollar during the year up to July 11, 2022.

Meanwhile, reflecting cross-currency movements, the Sri Lanka rupee depreciated against the euro, the pound sterling, the Japanese yen, the Australian dollar, and the Indian rupee during the year up to July 11, 2022.