Year ends with $ 7.6 b reserves, rupee appreciated 0.6 % in 2019 and 0.1% in 2020
The trade deficit contracted by $ 2.3 billion in 2019, closing the year at $ 7.9 billion, the Central Bank said yesterday, but December bucked the trend with the trade deficit widening due to merchandise imports increasing for the first time since October 2018 by 2.9% to $ 1,784 million even though exports dropped 3.2% to $ 1 billion.
The deficit in the trade account widened in December 2019 to $ 784 million, from $ 701 million in December 2018, led by a decline in exports and a growth in imports on a year-on-year basis. However, on a cumulative basis, the trade deficit contracted by $ 2,346 million to $ 7,997 million during 2019 from $ 10,343 million in 2018, the monthly external report said.
Meanwhile, the terms of trade i.e. the ratio of the price of exports to the price of imports, deteriorated by 2.9% (year-on-year) in December 2019, as export prices declined at a faster pace than the decline in import prices. Cumulatively, the terms of trade deteriorated by 1.5% during 2019 in comparison to 2018.
In comparison to December 2018, earnings from merchandise exports declined by 3.2% to $ 1,000 million in December 2019, with a decline in agricultural exports as well as industrial exports.
Earnings from agricultural exports declined in December 2019 due to lower exports of most subcategories. On a year-on-year basis, earnings from tea exports declined due to the combined effect of lower export volumes and average export prices.
Earnings from spices declined due to lower export prices of all subsectors while export volumes, except cloves, also declined. Earnings from seafood exports also declined with lower demand from the US market. In contrast, earnings from exports of minor agricultural products, mainly areca nuts and fruits, increased during the month.
Earnings from industrial exports declined in December 2019 in comparison to December 2018, mainly driven by lower textiles and garment exports due to dampened demand from the EU and the US, despite an increase recorded in exports to non-traditional markets such as Canada, Australia and China.
Earnings from machinery and mechanical appliances declined due to lower exports in most subcategories except insulated wires, cables and conductors. Earnings from rubber products also declined as a result of lower tyre exports, although the export of surgical and other gloves increased. Conversely, export earnings from petroleum products increased mainly due to the increase in earnings from petroleum gases despite a decline in earnings from bunker fuel. In addition, earnings from gems, diamonds and jewellery exports increased.
Earnings from mineral exports recorded a considerable growth in December 2019, year-on-year, led by ores, slag and ash exports.
The export volume index in December 2019 improved by 1.8% (year-on-year), while the export unit value index declined by 4.9%, indicating that the decline in exports was driven entirely by lower prices when compared to December 2018.
In December 2019, merchandise imports increased for the first time since October 2018 by 2.9% (year-on-year) to $ 1,784 million, driven by higher investment and consumer goods imports.
Expenditure on consumer goods imports increased in December 2019 with increases in both food and beverages and non-food consumer goods imports. Accordingly, vegetables (mainly big onions), spices (mainly chillies) and beverage (mainly alcoholic beverages) imports, categorised under food and beverages, increased. Meanwhile, most non-food consumer goods imports categories increased during the month.
Expenditure on personal motor vehicle imports recorded a growth on a year-on-year basis for the first time since November 2018, mainly reflecting the impact of the resumption of personal motor vehicle imports under concessionary permits.
Expenditure on investment goods imports increased in December 2019 due to higher imports of machinery and equipment and transport equipment. The increase in expenditure on machinery and equipment was driven by medical and laboratory equipment, while expenditure on transport equipment increased, with higher expenditure incurred on railway equipment and commercial vehicles. However, expenditure on building material decreased due to low imports of most subcategories except articles of iron and steel, mineral products and insulated wires and cables.
Expenditure on imports of intermediate goods declined in December 2019, mainly as a result of lower expenditure on base metals such as iron and steel. Expenditure on fertiliser and wheat and maize also decreased owing to lower import volumes as well as prices.
However, import expenditure on fuel increased during the month mainly due to higher expenditure on refined petroleum on account of a higher average import price and volume imported despite lower import expenditure on crude oil and coal due to lower import volumes. Expenditure on textiles and textile articles also increased, led by higher fabric and fibre imports.
The import volume index increased by 5% while the unit value index narrowed by 2.1% in December 2019, indicating that the decline in imports was driven entirely by lower prices when compared to December 2018.
A net outflow of foreign investment amounting to $ 100 million was recorded in the rupee denominated Government securities market in December 2019, resulting in a cumulative net outflow of $ 334 million in 2019.
During December 2019, there was a net foreign outflow of $ 5 million from the CSE, including primary and secondary market transactions. On a cumulative basis, the CSE recorded a net outflow of $ 35 million in 2019. Further, net inflows on account of long-term loans to the Government amounted to $ 8 million during December 2019.
Gross official reserves stood at $ 7.6 billion at end December 2019, equivalent to 4.6 months of imports. Meanwhile, total foreign assets consisting of gross official reserves and foreign assets of the banking sector amounted to $ 10.4 billion at end December 2019, equivalent to 6.3 months of imports.
The Sri Lankan rupee remained stable in December 2019 and appreciated by 0.6% against the US dollar during 2019. The currency appreciated by a further 0.1% against the US dollar during the year up to 17 February 2020. Reflecting cross-currency movements, the rupee appreciated against other major currencies during the year up to 17 February 2020.
(FT)