Export income rise, imports decline in May 2022-Central Bank says

Import expenditure declined while earnings from exports increased in May 2022, year-on-year, extending the contraction in the trade deficit for the third consecutive month, the Central Bank said on Tuesday releasing data for the month of May.

Tourist arrivals slowed in May 2022, compared to the previous month.

Workers’ remittances increased in May 2022, compared to April 2022. Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded marginal net inflows during May 2022.

Considering the liquidity pressures witnessed in the domestic foreign exchange market, the Central Bank imposed cash margin requirements in May 2022, while the Government introduced restrictions on open accounts and consignment payments terms, among others, the banking regulator said in a media release.

These measures were expected to curtail activity in the informal foreign exchange market and narrow the gap between the official and grey market exchange rates.

Meanwhile, the weighted average spot exchange rate in the interbank market remained stable around Rs. 359 per US dollar during the month, helped by the measures introduced to manage pressures in the domestic foreign exchange market, along with the market guidance.

Extracts from the statement:

The trade deficit recorded a decline for the fifth consecutive month on month-on-month basis and for the third consecutive month on year-on-year basis in May 2022, supported mainly by the policy induced moderation of imports, along with the notable growth momentum of exports. The trade deficit narrowed to US$404 million in May 2022, compared to the deficit of $716 million recorded in May 2021.

Earnings from merchandise exports in May 2022 increased substantially by 17.5 per cent over the corresponding month in 2021, recording at $1,047 million. The cumulative export earnings during January-May 2022 increased by 12.2 per cent over the same period in the last year, amounting to $5,266 million.

Earnings from the export of industrial goods increased in May 2022 by 24.2 per cent, compared to May 2021. A broad-based increase in earnings among industrial goods has been recorded, with the greatest share for the overall increase mainly being contributed by garments. Export of garments to all major markets (such as the United States, the European Union, and the United Kingdom) improved.

Total earnings from the exports of agricultural goods in May 2022 declined by 4.2 per cent, compared to May 2021. This decline was mainly attributed to exports of tea, spices, unmanufactured tobacco, and vegetables.

Expenditure on merchandise imports declined to the lowest level since November 2020, recording a decline of 9.7 per cent in May 2022 to $1,451 million, compared to $1,607 million and $1,699 million recorded in May 2021 and April 2022, respectively.

A decline in expenditure was observed across all main categories, with the imports of investment goods and non-food consumer goods contributing the most to this decline. The policy measures to curtail import expenditure, such as increase in taxes, restricting imports under several payment terms, imposing licensing and margin requirements as well as forex pressures in the banking system resulted in lower imports. However, on a cumulative basis, import expenditure increased by 5.3 per cent (year-on-year) to $8,802 million during January - May 2022.

Expenditure on the importation of consumer goods in May 2022 declined by 30.2 per cent, compared to May 2021, contributed mainly by a reduction of 11.4 per cent in food and beverages and of 47.4 per cent in non-food consumer goods. This year-on-year decline in expenditure on food and beverages was mainly due to lower volumes of oils and fats (mainly, coconut oil), vegetables (mainly, masoor dhal, big onions, chickpeas and garlic), seafood (mainly, dried and canned fish), sugar, fruits, spices and dairy products.

Despite the low importation of crude oil, the expenditure on fuel increased by 39.6 per cent (year-on-year), recording at $461 million, as average import unit price of refined petroleum increased despite a decline in volume imported. The average import price of crude oil was $109.94 per barrel in May 2022, compared to $68.47 per barrel in May 2021.

Workers’ remittances increased to $304 million during May 2022, in comparison to $249 million in the previous month and $460 million in the corresponding month in the previous year. This increase in workers’ remittances can mainly be attributed to the stability observed in the domestic foreign exchange market, along with the narrowing of the gap between the grey market and official exchange rate. Meanwhile, total departures for foreign employment were recorded at 22,194 during the month of May 2022, contributed by the unskilled (7,453), skilled (6,947) and domestic aid (4,793) categories.