Sri Lanka’s external sector made satisfactory progress during the period from January to October 2014, with continued foreign currency inflows in the form of earnings from exports, workers’ remittances and tourism as well as inflows to the financial account.
The external sector is expected to improve further during the remaining period of 2014 with inflows to the current and financial accounts of the Balance of Payments (BOP).
This, together with the envisaged decline in the trade deficit is expected to reduce the current account deficit, while projected inflows by way of foreign direct investments, inflows to the Colombo Stock Exchange and private sector would help strengthen the financial account of the BOP.
Consequently, the overall BOP position is expected to record a healthy surplus by the end of the year despite some volatility experienced in the government securities and equity markets recently. Economic Research Department
Earnings from exports declined by 13.7 per cent, year-on-year, in October 2014 to US dollars 899 million, after recording continuous monthly increases since June 2013, while cumulative earnings increased by 9.7 per cent to US dollars 9,187 million.
This decline was mainly due to the base effect as the highest level of export earnings in 2013 was recorded during the month of October. The largest contribution to the decline in exports in October 2014 was from textiles and garments followed by transport equipment and rubber products.
Major export destinations during January to October 2014 were USA, UK, Italy, India and Germany accounting for about 50 per cent of total exports.
Expenditure on imports increased by a higher rate of 25.6 per cent to US dollars 1,750 million in October 2014, while on a cumulative basis, imports grew by 7.3 per cent to US dollars 15,972 million during the first ten months of 2014.
The increase in import expenditure in October 2014 was mainly due to the significant increase in imports of fuel followed by imports of personal vehicles such as motor cycles and motor cars for personal use.
The trade deficit in October 2014 widened significantly to US dollars 852 million in comparison to US dollars 352 million in October 2013.
Meanwhile, the trade deficit during the first ten months of 2014 widened by 4.3 per cent over the corresponding period, in 2013.
Tourist arrivals recorded an impressive growth of 13.6 per cent, year-on year in October 2014, with 121,576 tourists arriving during the month. Earnings from tourism are estimated at US dollars 176 million in October 2014 in comparison to US dollars 144 million recorded in October 2013.
Workers’ remittances grew by 4.7 per cent to US dollars 600 million in October 2014 compared to US dollars 573 million in the corresponding period of 2013.
Meanwhile, cumulative inflows of workers’ remittances rose to US dollars 5,690 million during the first ten months of 2014 from US dollars 5,236 million during the same period of 2013, resulting in a growth of 8.7 per cent.
For the first ten months of 2014, long term loans obtained by the Government amounted to US dollars 1,411 million. Foreign investments in the government securities market from January to end October 2014 recorded a net outflow of US dollars 109 million, while foreign investments in the Colombo Stock Exchange (CSE) up to the end November 2014 recorded a net inflow of US dollars 150 million.
By end October 2014, Sri Lanka’s gross official reserves amounted to US dollars 8.8 billion, while total foreign assets, which include foreign assets of the banking sector amounted to US dollars 10.3 billion.
It is noteworthy that a healthy level of reserves was maintained, despite outflows on account of foreign currency debt service payments of US dollars 1,980 million and IMF-SBA payments of US dollars 624 million.
The rupee remained stable against the US dollar with only a marginal depreciation of 0.2 per cent as at December 09, 2014.