Sri Lanka’s export earnings drop in October 2022

Earnings from Sri Lanka’s merchandise exports declined in October 2022, on a year-on-year basis, for the first time since March 2022, mainly due to lower earnings from garments’ exports.

The decline in import expenditure continued in October, (y-o-y), for the eighth consecutive month, despite recording an increase, compared to September, the Central Bank in a review of the import/export performance in October 2022.

The merchandise trade deficit recorded a notable contraction in October, compared to the previous year. Meanwhile, workers’ remittances steadied and earnings from tourism improved in October, whereby earnings from tourism crossed over US$1 billion during January-October 2022, while workers’ remittances reached about $3 billion during January-October 2022. Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded a marginal net inflow during October. The Central Bank continued to provide forex requirement to finance essential imports, exhausting the liquid level of gross official reserves. Meanwhile, the weighted average spot exchange rate in the interbank market remained around Rs. 363 per US dollar during the month.

Trade Balance: The deficit in the merchandise trade account narrowed to $285 million in October, compared to the deficit of $502 million recorded in October 2021, despite it widening compared to September 2022. The cumulative deficit in the trade account during January-October 2022 recorded at $4,389 million, declined from $6,501 million recorded over the same period in 2021.

Terms of Trade: Terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated by 4 per cent in October, compared to October 2021, as the increase in import prices surpassed the increase in export prices.

Overall exports: Earnings from merchandise exports declined by 11.9 per cent in October over October 2021, to $1,051 million for the first time since March 2022. Meanwhile, export earnings in October recorded a decline for the second time on month-on-month basis. A decline in earnings was observed in industrial and agricultural exports, driven by lower demand mainly for garment exports due to increased global inflation conditions, while a marginal increase was recorded in mineral exports. Cumulative export earnings during January-October 2022 increased by 8.9 per cent over the same period in the last year to $11,032 million, which was mainly driven by the improvements in industrial exports.

Industrial exports: Earnings from the export of industrial goods declined in October by 13.4 per cent compared to October 2021, mainly due to the decline in the exports of garments by 12.9 per cent, food, beverages, and tobacco by 51.3 per cent (primarily, miscellaneous food preparations) and transport equipment by 60.7 per cent (due to the base effect of exporting cruise ships in October 2021). Exports of garments to most of the major markets recorded a decline (the USA, the EU and the UK). Further, earnings from exports of petroleum products that comprise bunkering and aviation fuel also declined due to lower export volumes despite a notable increase in average export prices in line with higher global fuel prices. Meanwhile, rubber products (mainly, household gloves and tires) and many of the smaller export segments also declined in October. However, sizable increases were recorded in relation to gems, diamonds, and jewellery; and machinery, and mechanical appliances (mainly, electronic equipment), among others.

Agricultural exports: Earnings from the exports of agricultural goods declined by 6.6 per cent in October compared to October 2021, mainly due to the declines in earnings from spices, coconut kernel products (primarily, desiccated coconut and coconut oil) and seafood. Export earnings from spices, including cinnamon, pepper, and cloves decreased, driven by lower export volumes, although earnings from nutmeg, and mace increased. Export earnings from tea also declined with lower export volumes, despite a notable increase in average export prices. However, there were marginal increases in export earnings from coconut non kernel products (mainly, fibres), unmanufactured tobacco, natural rubber and minor agricultural products

Mineral exports: Earnings from mineral exports improved by 46.4 per cent in October compared to October 2021, mainly due to an increase in export earnings from titanium ores categorised under ores, slag, and ash.

Overall imports: Expenditure on merchandise imports declined by 21.2 per cent to $1,336 million in October compared to $1,694 million in October 2021. A decline in import expenditure was observed in intermediate goods, investment goods and non-food consumer goods, mainly reflecting the lower activities in the economy, compared to 2021 and measures to compress imports, while an increase was recorded in imports of food and beverages. However, merchandise imports in October 2022 recorded an increase, compared to September 2022 ($1,284 million). On a cumulative basis, import expenditure from January to October 2022 amounted to $15,421 million compared to $16,632 million recorded in the corresponding period in 2021.

Consumer goods: Expenditure on the importation of consumer goods declined by 13.5 per cent in October, compared to October 2021, led by lower expenditure on non-food consumer goods. The decline in import expenditure on non-food consumer goods was observed in almost all subcategories, with a notable drop in imports of home appliances (primarily, televisions and refrigerators); telecommunication devices (primarily, mobile telephones); household and furniture items; medical and pharmaceuticals; and clothing and accessories. Meanwhile, expenditure on the importation on food and beverages increased by 22.1 per cent in October (y-o-y), mainly with an increase in import volumes of cereals and milling industry products (primarily, rice) and sugar. Further, the imports of vegetables (mainly, dhal and potatoes) also improved to some extent. In contrast, expenditure on dairy products (mainly, milk powder), oils and fats (mainly, coconut oil), seafood (mainly, dried fish), fruits and spices declined in October compared to October 2021, which was mostly led by lower import volumes.

The importation of fuel, unmanufactured tobacco and fertiliser increased in October compared to October 2021. Despite the non-importation of crude oil in the month, expenditure on fuel imports increased by 3 per cent (y-o-y) recording at $397 million, due to the substantial increase in average import prices of refined petroleum products and coal, although imported volumes declined, compared to October 2021.

Workers’ remittances: Workers’ remittances steadied in October 2022 at $355 million, recording a growth for the second consecutive month, on a year-on-year basis. Meanwhile, total departures for foreign employment were recorded at 28,473 during the month of October 2022. Total departures for foreign employment during January-October 2022 were recorded at 251,151 which has exceeded the annual departures in pre-pandemic period.