Trade deficit widens in April | Daily News


Trade deficit widens in April

Sri Lanka’s external sector performance in April 2020 was severely affected by the COVID-19 pandemic related economic interruptions. The deficit in the trade account widened in April 2020 to US dollars 840 million, from US dollars 797 million in April 2019, as the decline in exports exceeded the decline in imports.

On a cumulative basis, the trade deficit widened to US dollars 2,693 million during the first four months of 2020 from US dollars 2,458 million in the corresponding period of 2019.

 Meanwhile, terms of trade the ratio of the price of exports to the price of imports, deteriorated by 16.4% (year on year) in April 2020 as export prices declined at a faster pace than the decline in import prices.          

  In comparison to April 2019, earnings from merchandise exports declined significantly by 64.6 per cent to US dollars 282 million in April 2020, continuing the year-on-year decline observed in March 2020, with all major export sectors recording significant declines.

Disruptions to domestic production processes, disruptions to export related services due to the imposition of curfew and disturbances to both domestic and global supply and demand chains due to the outbreak of the COVID-19 pandemic were the main reasons for this sharp decline in the earnings from exports.

Earnings from the three major exports sectors; agricultural, industrial and mineral exports, recorded significant contractions in April 2020. Major export products such as textiles and garments, rubber products, petroleum products, gems, diamonds and jewellery, tea, seafood and machinery and mechanical appliances mainly contributed to the decline in export earnings.

 Both the export volume index and the unit value index declined by 50.6 per cent and 28.4 per cent, respectively, in April 2020, indicating that the decline in exports was driven by lower volumes and lower prices, compared to April 2019.

Expenditure on merchandise imports declined notably, on a year on year basis, by 29.6 per cent to US dollars 1,123 million in April 2020 mainly led by the significant declines in intermediate and investment goods.

 Measures taken by the government and the Central Bank during March and April 2020 due to the COVID-19 pandemic, including the suspension of facilitating the importation of selected goods contributed to the decline in import expenditure. Despite an increase in the import of food and beverages, the expenditure on consumer goods declined, although at a slower pace, led by lower imports of non-food consumer goods.

However, a considerable increase on import expenditure on personal vehicles was observed in April 2020 compared to the previous month, mainly due to the clearing of the backlog accumulated due to service disruptions with the spread of COVID-19 in the country.

 Both the import volume index and the unit value index declined by 17.8 per cent and 14.4 per cent, respectively, in April 2020, indicating that the decrease in imports was driven both by lower volumes and lower prices when compared to April 2019. Earnings from tourism provisionally estimated at US dollars 956 million during the first four months of 2020, recording a drop of 44.1 per cent from the corresponding period of 2019 while workers’ remittances declined by 32.3 per cent in April 2020, year on year, amounting to US dollars 375 million.

A net outflow of foreign investment amounting to US dollars 90 million was recorded from the rupee denominated government securities market in April 2020, resulting in a cumulative net outflow of US dollars 451 million during the first four months of 2020.

Gross inflows on account of long term loans to the government amounted to US dollars 137 million in April 2020.

Gross official reserves stood at US dollars 7.2 billion at end April 2020, equivalent to 4.5 months of imports. Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to US dollars 10.3 billion at end April 2020, equivalent to 6.5 months of imports.

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