According to the latest external trade data released by the Central Bank, country’s trade deficit narrowed in November 2020 by US $ 198 million to US $ 565 million, from US $ 762 million recorded in November 2019, due to a larger decline in imports compared to the decline in exports.

Amidst a decline in earnings from exports, a number of positive developments were observed in the external sector in November 2020, including a lower trade deficit, and a notable increase in workers’ remittances.

Merchandise imports continued to decline supported by the continuation of restrictions on non-essential imports and low global oil prices. There was a notable decline in merchandise exports in November compared to previous months due to disturbances to domestic production processes with the second wave of the COVID-19 pandemic.

Further, the cumulative deficit in the trade account from January to November 2020 narrowed to US dollars 5,416 million from the deficit of US dollars 7,213 million recorded in the same period in 2019.

Terms of trade, i.e., the ratio of the price of exports to the price of imports, improved by 0.6 per cent in November 2020, compared to November 2019, with import prices declining more than export prices.

Exports

Overall exports: Earnings from merchandise exports suffered in November 2020 due to the resurgence of COVID-19 cases in Sri Lanka and abroad. Earnings from exports declined by 16.3 per cent to US dollars 819 million in November 2020, compared to November 2019. This was a 3.4 per cent decline compared to October 2020. Measures imposed to combat the second wave of the pandemic locally affected production in key export sectors, garments in particular. Further, the second wave of the pandemic experienced in export markets affected demand for exports, while significant disruptions to global shipping and logistical chains also affected local businesses negatively.

Industrial exports: Earnings from the export of industrial goods declined by 19.6 per cent in November 2020 compared to November 2019, mainly due to the 37.2 per cent decline in garment exports. Health related restrictions in factories contributed significantly to this outcome. Meanwhile, earnings from the export of petroleum products declined significantly due to the reduction in bunkering quantities as well as prices. While exports of a number of smaller factory-based export sectors also declined, export earnings from some industrial export categories increased. The latter included; gems, diamonds and jewellery; rubber products (with increased exports of tyres and gloves); and plastics and articles thereof (with increased exports of personal protective equipment such as plastic clothing articles).

Agricultural exports: Export earnings from agricultural goods declined by 2.3 per cent in November 2020 compared to November 2019, due to a reduction in the export of seafood, minor agricultural products (fruits, edible nuts, betel leaves, etc.) and tea. Earnings from tea exports declined by 5.2 per cent, with declines in volumes of black and green tea exported, while unit prices of both types marginally increased. Agricultural exports that displayed an increase in earnings were spices (led by cinnamon and pepper), coconut (mainly coconut oil and non-kernel products) and rubber.

Mineral exports: Mineral exports declined by 4.4 per cent in November 2020 compared to November 2019. Exports of earth and stone declined, while exports of ores, slag and ash increased.

Export indices: The export volume index declined by 7.9 per cent while the unit value index declined by 9.1 per cent on a year-on-year basis in November 2020. This indicated that the decline in export earnings was caused by both lower volumes and lower prices.

Imports

Overall imports: Merchandise imports declined in November 2020, continuing the year-on-year declining trend observed since March 2020, mainly due to relatively low crude oil prices and restrictions imposed by the Government on the importation of non-essential goods. Expenditure on merchandise imports declined by 20.5 per cent to US dollars 1,384 million in November 2020 compared to November 2019. Declines recorded in all three major categories of imports, namely, consumer goods, intermediate goods, and investment goods, contributed to this outcome.

Consumer goods: Expenditure on the importation of consumer goods in November 2020 declined by 31.0 per cent compared to November 2019, mainly due to the restriction on the importation of motor vehicles for personal use. Other than the categories of medical and pharmaceuticals and toiletries, all broad segments of non-food consumer goods showed a decline compared to November 2019. However, the import of random miscellaneous items within these non-food consumer good categories, some of which are not under restrictions, displayed an increase even on a year-on-year basis, although they did not exert a substantial pressure on the trade balance. Such items included cigarettes, certain clothing items, tissues, carpets, mattresses, refrigerators, fans, clocks, lamps, TV antennas, certain footwear types, razors, umbrellas and certain cosmetic preparations. Import expenditure on food and beverages recorded a decline of 11.4 per cent in November 2020 compared to November 2019, with imports of most types of food and beverages declining. However, the importation of lentils, oils and fats (mainly coconut oil) and coriander seeds increased.

Intermediate goods: Expenditure on the importation of intermediate goods declined by 17.6 per cent in November 2020 compared to November 2019, driven by a 44.0 per cent decline in expenditure on fuel imports, which in turn was due to the reduction in oil prices in the world market. The average import price of crude oil in November 2020 was US dollars 45.88 per barrel, in comparison to US dollars 69.11 per barrel in November 2019. Volumes imported of crude oil slightly increased in November 2020 compared to November 2019, while volumes of refined petroleum and coal imports declined. Other intermediate good categories that showed a marked decline were textiles and textile articles used in garment production, cement clinkers and wheat. Intermediate goods imports that recorded notable increases included fertiliser, chemical products, iron and steel, and diamonds.

Investment goods: Imports of investment goods declined by 18.1 per cent in November 2020 compared to November 2019, with reductions in all three of its main categories, namely, machinery and equipment, building material and transport equipment, with many subcategories within them recording declines, which was partly due to import restrictions. Large value reductions were apparent in articles of iron and steel, medical and laboratory equipment, commercial purpose vehicles, cement, ceramic products, machinery and equipment parts, and uncategorised industrial machinery and transport equipment. However, notable increases in import expenditure were observed with iron and steel, computers, transmission apparatus, agricultural machinery and tractors.

Import indices: The import volume index and the unit value index declined by 12.0 per cent and 9.7 per cent, respectively, on a year-on-year basis in November 2020, indicating that the reduction in import expenditure was caused by lower import prices.