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. Workers’ remittances continued to record a growth in November as well.
In the financial account, foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded marginal net outflows in November 2020. The level of gross official reserves amounted to US dollars 5.6 billion at end November 2020, while the Sri Lankan rupee depreciated against the US dollar marginally during November 2020.
The deficit in the trade account narrowed in November 2020 by US dollars 198 million to US dollars 565 million, from US dollars 762 million recorded in November 2019, due to a larger decline in imports compared to the decline in exports.
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 in the corresponding 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.
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 percent 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.
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 percent in November 2020 compared to November 2019, mainly due to the 37.2 percent decline in garment exports. Health related restrictions in factories contributed significantly to this outcome.