Trade deficit narrows to US$ 549 mn in March | Daily News


 

Trade deficit narrows to US$ 549 mn in March

Import expenditure dips in comparison to decline in earnings:
Major Contributory Factors for the Increase in the Trade Deficit in January - March (in US$ m)
Major Contributory Factors for the Increase in the Trade Deficit in January - March (in US$ m)

The COVID -19 pandemic and the imposition of a partial lockdown in Sri Lanka in the second half of March 2020 affected external sector performance in March 2020.

Breakdown in supply and demand chains along with the interruption of domestic production processes resulted in a notable decline in merchandise exports as well as merchandise imports.

However, with a greater decline in the expenditure on imports compared to the decline in earnings from exports, the trade deficit narrowed over the same period in 2019. The tourism industry was severely affected with the imposition of travel restrictions globally and the closure of the Bandaranaike International Airport (BIA).

Workers’ remittances declined notably in March 2020, with the return of migrant workers from affected countries as well as the reported job terminations of some workers abroad.

However, the financial account was also strengthened with the receipt of proceeds from the syndicated loan facility in March 2020. The Sri Lankan rupee, which remained relatively stable up to the second week of March 2020, depreciated significantly until mid-April 2020, but stabilised thereafter with a notable appreciation during May 2020.

The deficit in the trade account narrowed in March 2020 to US dollars 549 million, from US dollars 592 million in March 2019, as the decline in imports in value terms exceeded the decline in exports. However, on a cumulative basis, the trade deficit widened to US dollars 1,853 million during the first three months of 2020 from US dollars 1,661 million in the corresponding period of 2019.

Meanwhile, terms of trade, the ratio of the price of exports to the price of imports, improved by 25.7 per cent (year on year) in March 2020, due to the increase in export prices and decline in import prices.

Earnings from merchandise exports declined significantly, on a year on year basis, by 42.3 per cent to US dollars 656 million in March 2020, reversing the marginal growth recorded in February 2020. Accordingly, all major exports sectors; agricultural, industrial and mineral exports, recorded significant contractions in March 2020.

However, earnings from minor agricultural products exports recorded a growth during the month. The export volume index in March 2020 declined by 45.1 per cent, while the export unit value index improved by 7.3 per cent.

Expenditure on merchandise imports declined notably, on a year on year basis, in March 2020 by 30.3 per cent to US dollars 1,205 million, reversing the increasing trend observed since December 2019.

Accordingly, all major import sectors; consumer, intermediate and investment goods, declined in March 2020.

A net outflow of the foreign investment amounting to US dollars 261 million was recorded from the rupee denominated government securities market in March 2020, resulting in a cumulative net outflow of US dollars 361 million during the first three months of 2020.

Foreign investment in the CSE, of which only secondary market transactions were available for March 2020, recorded a net outflow of US dollars 6 million. The CSE remained closed for trading from mid-March 2020 until mid -May 2020. On a cumulative basis, the CSE recorded a net outflow of US dollars 28 million in the first three months of 2020. Gross inflows on account of long term loans to the government amounted to US dollars 588 million in March 2020, which included the receipt of the syndicated loan facility from the China Development Bank amounting to US dollars 500 million.

Gross official reserves stood at US dollars 7.5 billion at end March 2020, equivalent to 4.6 months of imports.

Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector amounted to US dollars 10.7 billion at end March 2020, equivalent to 6.5 months of imports.


Rupee appreciates in May

The Sri Lankan rupee, which remained broadly stable up to the second week of March 2020, depreciated significantly with the outbreak of the COVID-19 pandemic during the latter part of March up to mid-April 2020, reaching a peak of Rs. 199.75 per US dollar on April 9, 2020.

However, the rupee stabilised thereafter, and recorded a significant appreciation during May 2020. As a result, the rupee which depreciated by 9.1 per cent against the US dollar up to April 9, 2020, reversed this trend and appreciated significantly, recording a depreciation of 2.4 per cent by June 1, 2020.

Reflecting cross-currency movements, the rupee depreciated against the euro and the Japanese yen while appreciating against the pound sterling, the Canadian dollar, the Australian dollar and the Indian rupee during the year up to 01 June 2020


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