The trade deficit declined in June 2020 (year-on-year), with a more than expected rebound in merchandise exports and notable reduction in merchandise imports on account of restrictions on non essential imports. Workers’ remittances recorded a growth in June, for the first time since the outbreak of the Covid-19 pandemic.
The government securities market and the Colombo Stock Exchange (CSE) recorded some outflows. Supported by the reduction in the trade deficit, the Sri Lankan rupee recorded a marginal appreciation during June 2020.
The deficit in the trade account narrowed in June 2020 to US dollars 161 million, from US dollars 316 million in June 2019, recording the lowest monthly deficit since August 2009. Also, on a cumulative basis, the trade deficit narrowed by US dollars 335 million to US dollars 3,262 million during the first six months of 2020 from US dollars 3,597 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, declined by 7.3 per cent (year-on-year) in June 2020 with prices of exports declining at a faster pace than those of imports.
Earnings from merchandise exports rebounded sharply, recording US dollars 894 million in June 2020 compared to US dollars 587 million recorded in May 2020. The gradual resumption of economic activities of the country as well as the recovery of both domestic and global supply and demand chains to some extent contributed to this improvement.
The earnings from textiles and garments exports led the increase from May 2020 to June 2020, followed by rubber products, food beverages and tobacco, seafood and spices. However, compared to June 2019, earnings from merchandise exports declined significantly by 17.5 per cent in June 2020. The year-on-year decline in earnings from exports was led by industrial exports.
Earnings from textiles and garments contributed the most to the decline in June 2020, on a year-on-year basis, despite the increase in earnings from personal protective equipment (PPE) such as face masks and protective suits, categorised under other made up articles.
Earnings from most subcategories of industrial exports including transport equipment, petroleum products, gems, diamonds and jewellery and animal fodder declined, year-on-year, during the month. Despite the increase of surgical and other gloves exports, earnings from rubber products declined, mainly driven by lower exports of tyres.
However, earnings from food, beverages and tobacco (led by liquid coconut milk, coconut cream and manufactured tobacco), plastics and articles thereof (led by plastic clothing articles) and chemical products (led by activated carbon) exports increased in June 2020 compared to June 2019.
Earnings from agricultural exports grew considerably by 12.0 percent on a year-on-year basis in June 2020, for the first time since May 2019.
This increase was led by all subcategories of agriculture exports except for unmanufactured tobacco. Earnings from tea recorded a growth after 10 months in June 2020 driven by higher average export prices of tea although the volume exported recorded a minor decline.
Higher earnings were recorded in minor agricultural products led by higher exports of arecanuts, fruits and betel leaves.
Earnings from spices increased with higher export volumes of cinnamon and pepper, while earnings from coconut increased as a result of higher average export prices of kernel products and higher export volumes of non kernel products. However, on a month-on-month basis, the improvement of the export volume index was substantially high at 61.7 percent while the deterioration of the unit value index was relatively low at 5.7 per cent, in June 2020 compared to May 2020.