Sri Lanka’s May exports fall 12% to US $ 776mn; imports rebound

„Five-month cumulative fall in exports over US $ 4.0bn „Cumulative trade deficit rises to US $ 3.4bn „1H tourism earnings top US $ 1.6bn „1H worker remittances rise 5.3% to US $ 3.6bn

Sri Lanka’s exports have continued to fall for the 15th month in a row as the May 2016 export earnings have narrowed by 12.0 percent year-on-year (YOY) to US $ 776 million, while the imports increased by a marginal 0.3 percent YOY to US $ 1.59 billion, expanding the trade deficit for the month by 15.7 percent to US $ 814 million from a year ago, the data from the Central Bank showed.

The imports, which have also been on the decline for the last 10 months, have rebounded in May, which will send a worrying signal for the policymakers who are struggling to cushion the country’s fragile external sector.

The cumulative decline in exports during the first five months has been 6.0 percent or massive US $ 4.2 billion compared to the same period in 2015. Meanwhile, the cumulative decline in imports has been a 2.8 percent to US $ 7.6 billion from the same period last year.

This has further widened the country’s cumulative trade deficit for the first five months by 1.4 percent YOY to US $ 3.4 billion. The lower global commodity prices, particularly the record low oil prices, have so far bode well for Sri Lanka, which depends on imports for a large part of its consumption-related activities.

The Central Bank last week tightened the monetary policy further to curb the rising demand for consumption created via bank credit.

The same low commodity prices have had an adverse impact on the country’s exports but the issues in Sri Lanka are more internal. The policymakers of the successive governments have been calling for boosting exports but so far nothing has happened – instead the earnings have been declining every month.

Sri Lanka’s exports in comparison to gross domestic product have fallen from a high of 33 percent in 2002 to 14 percent in 2015.

The coalition government is however pursuing a strategy of entering into free trade agreements with multiple countries – Singapore, China and a deeper trade and services agreement with the neighbouring India – Economic and Technology Cooperation Framework Agreement (ETCA). But the economists caution opening up markets prior to building up a product base to export and building up capacity within the country would lead to Sri Lanka further flooded with imports.

Meanwhile, earnings from tourism, the only sweet spot in the Sri Lankan economy, has fared well during the first six months with total earnings increasing to US $ 1.6 billion with arrivals increasing by 16.2 percent YOY to 964,267.

In June alone, the earnings from tourism are estimated to have increased to US $ 195.6 million, earned from 118,038 arrivals, which increased by 2.2 percent.

Further, worker remittances, which buttress the country’s balance of payment (BOP) every year, have increased by 5.3 percent YOY to US $ 3.6 billion during the first six months. In June alone, the remittances have increased by 2.4 percent YOY to US $ 644.5 million.