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There has been a slight improvement in the external finances of the country mainly due to increased remittances and earnings from tourism.

Overview

Increased export earnings and decreased imports reduced the trade deficit in the first ten months of this year. The balance of payments too improved owing to increased tourist earnings and higher remit-tances. Consequently, there has been a slight improvement in the balance of payments, in the first ten months of this year. The trade deficit declined, remittances and earnings from tourism increased and the balance of payments improved.

Balance of payments

The improvement in external finances at the end of October was due to continued increases in ex-ports, higher remittances from abroad and increased tourist earnings.

Trade deficit

The trade deficit decreased to US$ 4.4 billion by October this year compared to US$ 6.5 billion in the first ten months of 2021. Earnings from tourism and remittances from abroad are expected to increase in the coming months. The trade deficit is however likely to widen due to reduced exports.

Foreign assistance

Although the prospect of the IMF facility of US$ 2.9 billion over four years is uncertain, there may be other international assistance and concessional loans in the near future.

Exports

Export earnings in the first ten months of this year increased by 8.9 percent to US$ 11 billion. This was mainly due to increased industrial exports, especially garments. However, merchandise exports de-clined by 11.9 percent in October to US$ 1,051 million compared to a year ago. This was a reversal of the increasing trend in exports since March this year and is likely to continue due to recessionary con-ditions in the country’s main western markets.

This reversal portends a decline in manufactured exports as recessionary conditions are dampening demand in our main export markets. Export orders have slowed down significantly from January next year owing to recessionary conditions in our main export markets in the West.

The cumulative export earnings in the first ten months of this year, however, increased by 8.9 percent over the same period last year to US$ 11 billion, which was mainly driven by the improvements in in-dustrial exports.

Threat

Recessionary conditions in our main export markets threaten our main exports. Exporters have said orders slowed down significantly from January this year.

Tourism

The improvement in the external finances this year was mainly due to increased earnings from tour-ism. Tourist earnings of US$ 1.5 billion in the ten months of this year was a significant increase from that of the same period last year.

Expectations

Tourist arrivals are expected to rise in the last two months to increase this year’s total earnings from tourism to around US$ two billion. This is about half of the earnings during 2018, the peak year.

Prospects

The prospects of a further improvement in the external finance’s rests largely on enhanced earnings from tourism and higher remittances from abroad to the banks.

More tourists

Indications are that there would be a higher inflow of tourists in November and December. Tourist earnings of over US$ one billion in the last two months could enhance the external reserves.

Foreign assistance

At the time of writing there are reports of new commitments of assistance from international organi-sations, such as the World Bank, Asian Development Bank (ADB), International Finance Corporation (IFC) and several countries.  The main contribution of these would be to enhance the country’s eco-nomic growth. Initially these funds would be a balance of payments support, but a high proportion of these inward inflows would flow out for import needs of the projects. Nevertheless, these funds would be a valuable for the external finances.

Concessional finance

Furthermore, we may also be able to borrow from international [NS1] financial institutions on conces-sional terms as some time ago. Although we are a middle-income country, we will be treated as a low income country owing to the dire economic crisis in the country and will be entitled to loans at conces-sional interest rates. Considering these favourable developments, the external financial crisis may ease.

Export prospects

In contrast to these favourable developments, the export growth this year is likely to be reversed. The trade deficit is likely to expand as indications are that exports may decline owing to recessionary condi-tion in western countries. Orders for our manufactured exports are likely to decrease significantly. They have already reduced, especially orders for garments. This would make a serious dent in export earnings next year. Import expenditure might decrease owing to lesser raw material imports and low-er international fuel prices.

Conclusion

There are a few silver linings among the dark clouds of our external finances. However, a recessionary global economy is a real threat to our exports. The prospect of lower prices of fuel would be a boon to the trade balance and external finances. Increased tourist earnings, higher remittances and foreign assistance are likely to improve the external finances. All things considered, there is a likelihood of an improvement in external finances next year.