Sri Lanka’s external sector strengthened in April 2018 with continuous inflows to the financial account of the balance of payments (BOP) despite the mixed performance demonstrated in the current account.
Higher inflows to the financial account, particularly with the proceeds of the 12th international sovereign bond (ISB) issuance, project loans and FCBU loans and foreign investment in the Colombo Stock Exchange (CSE) and the government securities market, resulted in gross official reserves reaching the historically highest level of US dollars 9.9 billion as at end April 2018.
In terms of the current account, the trade deficit expanded in April 2018 as import expenditure increased at a higher pace while export earnings remained subdued. However, tourist earnings and workers’ remittances continued to record a healthy growth during the month.
The deficit in the trade account expanded in April 2018 reversing the deceleration observed in the previous month. This expansion was largely driven by the increase in expenditure on imports while earnings from exports remained stagnant.
In April 2018, merchandise export earnings remained unchanged at US dollars 795 million when compared with April 2017.
In April 2018, expenditure on imports increased to US dollars 1,794 million, registering a double-digit year-on-year growth. This growth was supported by the increase in all main categories. Import expenditure on personal vehicles, categorized under consumer goods, contributed mainly to the overall growth in imports due to the substantial increase in imports of small engine capacity vehicles, hybrids and electric vehicles.
Foreign investments in the CSE, including both secondary and primary market foreign exchange flows, recorded a net inflow of US dollars 28.4 million during the month of April 2018. Consequently, cumulative net inflows to the CSE in the first four months of 2018 amounted to US dollars 47.2 million.
With proceeds of the ISB issuance, the level of gross official reserves of the country increased to US dollars 9.9 billion, equivalent to 5.5 months of imports, at end April 2018. Total foreign assets, including foreign assets of the banking sector, were estimated at US dollars 12.3 billion as at end April 2018, which was sufficient to cover 6.8 months of imports.
Rupee depreciated by 3.7 per cent against the US dollar during the year up to 28 June 2018. The weakening of the Sri Lankan rupee against the US dollar partly reflects a broad-based strengthening of the US dollar globally.
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