The last trade surplus was in 1977. It was a small surplus achieved with very stringent import controls. This rare phenomenon of a surplus has been achieved only six times in the history of the country since independence. And that too mostly in the distant 1950s. Neither the tight import controls nor the liberalised economic policies achieved a sound trade balance. There is no need for a country to achieve trade surpluses year-in-year-out. But continuous trade deficits over many years' are a serious strain on the balance of payments and the country's foreign exchange reserves.

The continuous trade deficits are an indication that the country suffers a fundamental disequilibrium in its trade. The usual remedy for a balance of payments deficit is the depreciation of the currency. This is a remedy that has been applied time and again without any relief on the trade balance. The structure of the country's exports and imports and the incapacity to improve productivity account for this continuous inability to correct the trade balance. Is it not timely for policy makers to take stock of the trade structure and look into possible remedies for this parlous situation?

In a trade dependent economy, as is the case with Sri Lanka, the trade performance has an important bearing on the welfare of the people and the country's economic development. It is also a good indicator of the health of the economy. The fact that we were unable to improve our trade balance this year, when there was a revival of the international economy, is certainly a cause for concern. We must look at both the export and import structure of the country and see what corrective action could be applied to decrease certain imports and increase exports. There is a serious concern that our competitive advantage is being eroded in certain industrial products. The causes for these must be examined and remedial measures taken to ensure our competitiveness in international markets.

In as far as this year's trade performance is concerned, we find that exports for the first 10 months were 8 percent less than last year. Agricultural exports (mainly tea) were around the same as in 2001, but industrial exports declined by about 9 percent from the earnings of last year. A decrease in Sri Lanka's main industrial export garments mostly accounted for this decline. The performance in the first half of the year was however much worse when exports had declined by 11 percent. There has been an improvement since then thereby accounting for the decrease in the decline in exports from 11 percent at end of June to 9 percent at the end of October. There has also been an improvement in industrial exports that had declined sharply in the first half of the year. Yet the gain in momentum has been inadequate to offset the poor performance in the first half of the year.

In spite of an improvement in exports since July this year the trade deficit has grown. It appears that the country is heading for another huge trade deficit. It is likely to reach around US$1200 million. This is higher than last year's deficit of US$ 1157 million, although lower than the trade deficit of US$ 1798 million in the balance of payments crisis year 2000.

The trade deficit is of a magnitude that raises serious concerns for the balance of payments and the foreign exchange reserves. Beyond the concerns of this year are the persistent trade deficits that require to be addressed. We must recognise that quite apart from the fluctuations in the deficit each year, the continuing persistence of the deficit year-in-year-out is an indication of fundamental weaknesses in the economy. It is these that we must address.

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