Import costs come down, slowdown in exports – CB says

Expenditure on imports continued to ease with July 2012 statistics reflecting the same trend, and thereby helping contain the deficit in the trade balance of the balance of payments.

The deficit in the trade balance declined by 33.8 per cent, year-on-year, to US$535 million in July, the lowest level recorded in 17 months.

Import costs, on a year-onyear basis since April, recorded a decline of 24.9 per cent, year-on-year, in July 2012, as expenditure on several categories of imports, which had contributed significantly to the expansion of the trade deficit last year, continued to decline, the Central Bank said.

“Measures taken by the government and the Bank earlier in the year to rein in the high growth of both credit and imports are likely to have led to the decline in expenditure on imports of these items. In value terms, expenditure on imports in July is the lowest recorded since March 2011,” the statement said.

Amongst the import categories classified under consumer goods that made a relatively high contribution to this decline were motor vehicles. Expenditure on imports of motor vehicles has declined by 62.4 per cent, yearon-year, in July. With regard to intemediate goods, significant declines were noted in respect of import expenditure in relation to fertiliser, gold, wheat and rubber based

Measures taken by the government and the Bank earlier in the year to rein in the high growth of both credit and imports are likely to have led to the decline in expenditure on imports of these items

products. As in June, expenditure on investment goods imports recorded a decline in July 2012 too, although for the first seven months of 2012, investment goods have recorded an increase on a year-onyear basis. Expenditure on investment goods imports in July declined by 20.6 per cent, year-on-year.

“As in the case of Asian as well as other countries around the world facing weaker global demand, Sri Lanka’s export earnings have also slowed down in recent months, although on a month-on-month basis, export earnings have recorded an increase from June to July 2012. In addition to weaker global demand, the marked decline in the prices of commodities such as cotton and rubber in international markets has contributed significantly to the decrease in Sri Lanka’s export earnings in recent months. Further, the base effect, that is, the fact that export earnings were at a historically high level of US$962 million in July 2011 has also led to the relatively large drop in export earnings in July 2012,” the CB said.

Earnings from tourism and workers’ remittances continued to gain, cushioning the current account of the balance of payment (BOP). Tourism earnings grew by 23.6 per cent, yearon-year, to $100 million (in July), while during the first seven months of 2012, earnings from tourism have grown at a rate of 24.2 per cent, year-on-year, to $560 million.

The number of tourists visiting Sri Lanka totalled 90,338 in July 2012, up 7.8 per cent, raising tourist arrivals during the first seven months of 2012 to 543,205. Workers’ remittances grew by 14.4 per cent, year-on-year, to $475 million in July 2012, while cumulative inflows on account of workers’ remittances during the first seven months of 2012 increased by 17 per cent to $3.4 billion.

Foreign Direct Investment (FDI) inflows, including foreign loans to BOI companies, of which data becomes available only quarterly, recorded an inflow of $452 million during the first six months of 2012 and more inflows are expected to materialise during the year.

Gross official reserves amounted to $7billion by end July 2012, while total international reserves, which include gross official reserves and foreign assets of commercial banks amounted to $8.7 billion.