Trade deficit contracts significantly in 2019, Central Bank says
View(s):The trade deficit in Sri Lanka’s economy, despite the impact of the Easter Sunday bombings in April 2019, contracted significantly in 2019, driven by a sharp contraction in import expenditure. Earnings from exports declined while expenditure on imports increased during December 2019, widening the trade deficit, the Central Bank (CB) said in releasing the economic data for December 2019.
The speed of recovery (after the Easter Sunday bombings) in tourism industry accelerated in December although cumulative earnings from tourism declined during the year. Workers’ remittances increased notably (year-on-year) in December helping to moderate the cumulative decline in 2019. Meanwhile, there was a notable outflow of foreign investment from the government securities market during December while marginal net outflows were also observed from the stock market. The Sri Lankan rupee appreciated against the US dollar during 2019 and remained stable thus far during 2020, the CB said in the statement.
It said the deficit in the trade account widened in December to US$ 784 million, from $701 million in December 2018, led by a decline in exports and a growth in imports on a year-on-year basis.
However, on a cumulative basis, the trade deficit contracted by $2,346 million to $7,997 million during 2019 from $10,343 million in 2018.
It said on a year-on-year basis, earnings from tea exports declined due to the combined effect of lower export volumes and average export prices. Earnings from spices declined due to lower export prices of all sub sectors while export volumes, except cloves, also declined. Earnings from seafood exports also declined with lower demand from the US market. In contrast, earnings from exports of minor agricultural products, mainly arecanuts and fruits, increased during the month.
Earnings from industrial exports declined in December 2019 in comparison to December 2018, mainly driven by lower textiles and garment exports due to dampened demand from the EU and the US, despite an increase recorded in exports to non-traditional markets such as Canada, Australia and China.
In December 2019, merchandise imports increased for the first time since October 2018, by 2.9 per cent (year-on-year) to $1,784 million, driven by higher investment and consumer goods imports.
Expenditure on consumer goods imports increased in December 2019 with increases in both food and beverages and non-food consumer goods imports. Accordingly, vegetables (mainly big onions), spices (mainly chillies) and beverages (mainly alcoholic beverages) imports, categorised under food and beverages, increased.
The CB said that monthly tourist arrivals after the Easter Sunday attacks recovered notably and recorded only a modest decline on a year-on-year basis in December 2019.
Tourist arrivals were recorded at 1.9 million in 2019, a decline of 18 per cent compared to 2.3 million arrivals in 2018. The tourism sector could suffer a further setback in the period ahead, following the outbreak of the new coronavirus that originated in China and spread to several other countries.
Earnings from tourism were provisionally estimated at $454 million in December, in comparison to $475 million in December 2018. Earnings from tourism during 2019 were provisionally estimated at $3,592 million, compared to $4,381 million during the previous year.
Workers’ remittances recorded a growth of 13.8 per cent in December 2019, year-on-year, amounting to $665 million. On a cumulative basis, workers’ remittances recorded a decline of 4.3 per cent, amounting to $6,717 million in 2019 compared to $7,015 million in 2018.
While a net outflow of foreign investment was recorded in the rupee denominated government securities market in December, on a cumulative basis, the Colombo Stock Exchange recorded a net outflow of $35 million in 2019.