Sri Lanka’s external sector displayed a mixed performance in June 2018. Even though the lowest trade deficit so far during the year in absolute terms was recorded in the month of June, the trade deficit widened significantly in comparison to June 2017 as the growth in import expenditure outpaced the increase in export earnings.
Exports earnings from merchandise exports surpassed US$1 billion for the second time during the year to US$1,024 million in June 2018, mainly driven by industrial exports.Earnings from tourism increased notably in June 2018 continuing the growth momentum observed since the beginning of the year, although workers’ remittances declined during the month in comparison to June 2017.
The financial account of the Balance of Payments (BOP) was supported by the fifth tranche of the Extended Fund Facility of the International Monetary Fund (IMF-EFF) and the third tranche of the divestiture of the Hambantota Port, however, outflows of foreign investment from the government securities market and the secondary market of the Colombo Stock Exchange (CSE) exerted some pressure on the BOP. Reflecting developments in the domestic and global foreign exchange markets, the Sri Lankan rupee depreciated by 3.4 per cent against the US dollar by end June 2018 and by 5.0 per cent during the year up to 27 August 2018. The country’s gross official reserves as at end June 2018 were US dollars 9.3 billion.
The deficit in the trade account continued to expand in June 2018 in comparison to June 2017, driven by the higher growth in imports. On a cumulative basis, the trade deficit expanded significantly during the first half of 2018 in comparison to the first half of 2017.
Under industrial exports, earnings from textiles and garment exports increased significantly due to the higher demand from the EU and the USA while exports to non – traditional markets also increased.Export earnings from petroleum products increased significantly in June 2018 due to the combined effect of higher export prices and volumes of bunker and aviation fuel. Export earnings from rubber products increased mainly due to higher earnings from tyre exports. Also increased notably during the month owing to the increase in earnings from electrical machinery and equipment and electronic equipment exports.
Meanwhile, export of base metals and articles increased due to higher exports of iron and steel articles and aluminium articles. However, earnings from transport equipment exports declined significantly mainly due to the effect of higher earnings recorded in June 2017 following the export of two ships. In addition, food, beverages and tobacco and leather, travel goods and footwear exports also declined notably in June 2018, In comparison to June 2017. Meanwhile, earnings from agricultural exports declined in June 2018 due to the poor performance in almost all categories except seafood, unmanufactured tobacco and rubber exports. Export earnings from tea declined as both prices and volumes exported reduced in June 2018 . In addition, export earnings from spices declined marginally in June 2018 as the growth in cinnamon and nutmeg and mace was outperformed by the decline in pepper, cloves and other spices.
However, benefiting from the positive impact of the removal of the ban on fisheries exports to the EU and the restoration of GSP+ facility , earnings from seafood exports increased significantly during the month due to higher prices and volumes of seafood exported.Leading markets for merchandise exports of Sri Lanka in June 2018 were the USA, the UK, India, Italy and Germany, which accounted for about 48 per cent of total exports.