According to the latest external trade data released by the Central Bank, country’s trade deficit narrowed in August 2020, as import prices declined at a faster pace than the decline in export prices.

Sri Lanka’s external sector continued to recover in relation to many aspects during August 2020, mainly supported by an improved trade deficit and a notable increase in workers’ remittances.

The trade deficit improved on a year-on-year basis, with the reduction in merchandise imports due to regulatory restrictions on the importation of non-essential goods and lower crude oil prices, despite earnings from merchandise exports recording a year-on-year decline during the month.

Nevertheless, the export performance remained strong for the third consecutive month in spite of the pandemic affected global demand.

The deficit in the trade account in August 2020 narrowed to US$ 342 million from US$ 541 million in August 2019, as imports declined at a faster pace than the decline in exports.

Also, on a cumulative basis, the trade deficit narrowed by over US$ 1 billion to US$ 3,812 million during the period from January to August 2020 from US$ 4,855 million in the corresponding period of 2019.

Meanwhile, terms of trade, i.e., the ratio of the price of exports to the price of imports, improved by 4.6% (year-on-year) in August 2020 as import prices declined at a faster pace than the decline in export prices.

Exports

Although export performance remained robust considering the current global market conditions, earnings from merchandise exports declined both on a year-on-year basis as well as on a month-on-month basis in August 2020. Accordingly, merchandise exports declined to US dollars 947 million in August 2020 compared to US dollars 1,033 million recorded in August 2019 and US dollars 1,085 million recorded in July 2020. The year-on-year decline emanated from declines recorded in earnings from all three major categories of exports, namely, industrial, agricultural, and mineral exports.

Industrial exports declined by 10.2 per cent, year-on-year, in August 2020 mainly due to reduced earnings from exports related to textiles and garments, petroleum products, gems, diamonds and jewellery, leather, travel goods and footwear and base metals and articles. Earnings from textiles and garments declined by 11.9 per cent in August 2020, led by lower garments exports to the USA and the EU. However, a notable increase was recorded in earnings from personal protective equipment (PPE) such as face masks and protective suits, which are categorised under other made up articles. Earnings from petroleum exports declined, with lower bunkering quantities and prices. Meanwhile, earnings from rubber products declined, due to the decline in earnings from tyre exports although earnings from surgical and other gloves exports increased. In contrast, earnings from subcategories of plastics and articles thereof (mainly due to plastic clothing articles), and food, beverages and tobacco (mainly due to value added coconut products, such as liquid coconut milk, coconut cream and coconut milk powder) increased during the month of August 2020.

Earnings from agricultural exports declined marginally on a year-on-year basis in August 2020. The decline in the overall earnings from agricultural exports led by tea exports, which declined considerably by 13.3 per cent, followed by seafood and rubber. Earnings from exports of tea declined due to the low export volume inspite of higher prices observed during the month of August 2020 compared with the corresponding period of previous year. Except these three subcategories, all other subcategories of agricultural exports recorded increases. Earnings from spices exports increased, led by higher export volumes of cinnamon and cloves in August 2020 compared with August 2019. Earnings from coconut exports increased, with increases in both kernel and non kernel products. Earnings from minor agricultural products increased in August 2020 compared with August 2019, as earnings from arecanuts continued to maintain the year-on-year increasing trend observed since September 2019.

Earnings from mineral exports declined in August 2020, year-on-year, led by lower earnings from ores, slag and ash exports, although earnings from earths and stone exports increased.

The export volume index improved by 3.2 per cent, on a year-on-year basis, while the unit value index deteriorated by 11.2 per cent, on a year-on-year basis, in August 2020, indicating that the year-on-year decline in earnings from exports was, on average, driven by lower export prices.

Imports

Continuing the year-on-year declining trend observed since March 2020, merchandise imports recorded a decline of 18.1 per cent to US dollars 1,289 million in August 2020. The continuation of measures taken by the Government to restrict the importation of selected non-essential goods and lower fuel prices in the international market primarily caused this decline.

The expenditure on consumer goods declined, led by both food and beverages and nonfood consumer goods imports. The non-food consumer goods imports declined with lower expenditure on all subcategories except telecommunication devices (mainly due to mobile phones). Expenditure on personal vehicle imports declined considerably by 98.4 per cent in August 2020. Import expenditure on food and beverages declined in August, led by dairy products (mainly milk powder), vegetables (mainly big onions), seafood (mainly canned fish), fruits (mainly apples and grapes) and beverages (mainly alcoholic beverages). However, import expenditure on oils and fats (mainly coconut oil), spices (mainly chilies), sugar and cereals and milling industry products (mainly malt) increased during the month of August 2020 when compared with August 2019.

The expenditure on intermediate goods imports declined in August 2020, year-on-year, due to declines recorded in most of subcategories including textiles and textile articles (-16.7 per cent), fuel (-5.2 per cent) and fertiliser (-74.4 per cent). The reduction in expenditure in fuel imports was mainly due to lower petroleum prices in the international market while higher import volumes of crude oil and refined petroleum were observed in August 2020 compared to the corresponding period of the previous year. The average import price of crude oil declined to US dollars 47.74 per barrel in August 2020 from US dollars 64.78 a year ago. Meanwhile, the reduction in import expenditure of textiles and textile articles was led by lower imports of fabrics, fibres and yarn. Further, expenditure on all other sub categories under intermediate goods except wheat and maize, food preparations, agricultural inputs, mineral products and unmanufactured tobacco also declined in August 2020 compared to August 2019.

The expenditure on investment goods declined notably, with declines in all sub categories in August 2020, on a year-on-year basis. Accordingly, expenditure on machinery and equipment (mainly telecommunications devices), building material (mainly iron and steel, articles of iron and steel and cement) and transport equipment (mainly commercial vehicles such as auto trishaws, tankers and bowsers) declined in August 2020 when compared with August 2019.

Both the import volume index and the unit value index declined by 3.6 per cent and 15.1 per cent, respectively, on a year-on-year basis in August 2020, indicating that the decrease in import expenditure was caused both by lower volumes and lower prices.