COVID-19 affected SL’s external economic performance in April-CB

Sri Lanka’s external sector performance in April 2020 was severely affected by the COVID-19 pandemic related economic interruptions, the Central Bank (CB) said this week. 
“The imposition of a partial lockdown had a significant impact on Sri Lanka’s merchandise exports sector while shutting down the tourism industry in April 2020. The expenditure on merchandise imports also declined, with disruption to import related supply chains and restrictions imposed on non-essential imports by the government and the Central Bank,” the CB said in a media release. 
With some migrant workers returning to the country prior to the lockdown and reduced compensation and redundancies faced by some migrant workers abroad, a significant decline was recorded in workers’ remittances during the month. 
With increased uncertainties and lack of inflows to the domestic foreign exchange market, the Sri Lanka rupee depreciated significantly against the US dollar during the first half of April 2020. However, the rupee began to stabilize gradually since second half of the month with improving market sentiments. Subsequent appreciation of the exchange rate helped in limiting the depreciation to less than 3 per cent so far during the year, it said.
Providing more details of economic developments, the release said that the deficit in the trade account widened in April 2020 to US$840 million, from $797 million in April 2019, as the decline in exports exceeded the decline in imports. On a cumulative basis, the trade deficit widened to $2,693 million during the first four months of 2020 from $2,458 million in the corresponding period of 2019.

Disruptions to domestic production processes, disruptions to export related services due to the imposition of curfew and disturbances to both domestic and global supply and demand chains due to the outbreak of the COVID-19 pandemic were the main reasons for this sharp decline in the earnings from exports.

Expenditure on merchandise imports declined notably, on a year on year basis, by 29.6 per cent to $1,123 million in April 2020 mainly led by the significant declines in intermediate and investment goods. 

Measures taken by the government and the Central Bank during March and April 2020 due to the COVID-19 pandemic, including the suspension of facilitating the importation of selected goods contributed to the decline in import expenditure, the release said. 

A considerable increase on import expenditure on personal vehicles was observed in April 2020 compared to the previous month, mainly due to the clearing of the backlog accumulated due to service disruptions with the spread of COVID-19 in the country. 

With little or no tourist arrivals, earnings from tourism were provisionally estimated at $956 million during the first four months of 2020, recording a drop of 44.1per cent from the corresponding period of 2019, the CB said.
Workers’ remittances on a cumulative basis recorded a decline of 9 per cent to $1,975 million during the first four months of 2020, in comparison to the corresponding period of 2019.