Earnings from export of goods increased during the month compared to a year earlier, but expenditure on imports increased at a faster pace, causing the trade deficit to widen for the fifth consecutive month in July.
Workers’ remittances declined in July, following the trend observed in June 2021, while earnings from tourism remained at minimal levels.
Meanwhile, maintaining the country’s impeccable record of debt service payments, Sri Lanka successfully settled the matured 10-year International Sovereign Bond (ISB) of US dollars 1.0 billion in July this year.
Foreign investment in the Government Securities Market recorded a marginal net inflow, while the Colombo Stock Exchange (CSE) continued to record net outflows during the month. The average spot exchange rate in the interbank market remained broadly stable in July.
The deficit in the trade account widened on a year-on-year basis to US dollars 607 million in July 2021 compared to the deficit of US dollars 209 million recorded in July 2020.
The cumulative deficit in the trade account from January to July 2021 also widened to US dollars 4,922 million from US dollars 3,471 million in the corresponding period of 2020. The ratio of the price of exports to the price of imports, deteriorated by 11.6 percent in July 2021 compared to July 2020, as the increase in import prices surpassed the increase in export prices.
Exports performed well in July 2021 despite the ongoing pandemic. Earnings from merchandise exports in July 2021 recorded an increase of 1.7 percent to US dollars 1,104 million compared to July 2020.
Cumulative export earnings from January to July 2021 amounted to US dollars 6,803 million, compared to US dollars 5,498 million recorded in the corresponding period in 2020. Industrial exports: Earnings from the export of industrial goods increased by 1.1 percent in July 2021 compared to July 2020.
This increase was mainly due to the increase in earnings from export of petroleum products, machinery and mechanical appliances (primarily parts of mechanical appliances and electronic equipment) and rubber products (tyres and gloves).
Earnings from the export of petroleum products improved because of the increase in prices and quantities of bunker fuel supplied, as well as the prices of aviation fuel supplied. Among the sectors that recorded a decline in July 2021 over July 2020 were food, beverages and tobacco (mainly miscellaneous food preparations); textiles and garments (mainly face masks); and plastic articles.
Export of garments to the EU and UK region declined in July 2021 compared to July 2020, while exports to the USA and other destinations increased.
Agricultural exports: Total earnings from the export of agricultural goods in July 2021 increased by 2.3 percent compared to July 2020, mainly due to the increase in export earnings from seafood (such as fresh and frozen tuna, fish fillet, shrimps and prawns) and spices (cinnamon, pepper, cloves, nutmeg and mace).
However, earnings from the export of tea declined significantly, due to a decline in both volume and prices of tea exported. Further, exports of vegetables and minor agricultural products also recorded a drop due to the decline in earnings from lentils and arecanuts, respectively. Mineral exports: Earnings from mineral exports were lower in July 2021 than in July 2020 by 6.9 percent due to a decline in export earnings from minerals such as granite, quartz and zirconium ores.
The export volume index declined by 4.2 percent, while the export unit value index increased by 6.1 percent on a year-on-year basis in July 2021. This indicates that the increase in export earnings, on a year-on-year basis, was due to the increase in export prices that outpaced the decline in export volumes.
Expenditure on merchandise imports increased by 32.2 percent to US dollars 1,710 million compared to US dollars 1,294 million recorded in July 2020. The increase in import expenditure was observed across all main categories of imports, namely, consumer goods, intermediate goods and investment goods, despite some import controls still being in place.
On a cumulative basis, total import expenditure from January to July 2021 amounted to US dollars 11,725 million, compared to US dollars 8,968 million recorded in the corresponding period in 2020.
Consumer goods: Expenditure on the import of food and beverages declined by 9.4 percent, with the decline primarily stemming from sugar, milk powder and seafood.
However, import expenditure on some food and beverage segments such as coconut oil, vegetables (mainly garlic, dhal, chickpeas and red onions), and spices (mainly chillies) increased.
Expenditure on imports of non-food consumer goods increased by 41.0 percent, with a broad-based increase in all non-food consumer goods (except personal vehicles, which are under import restrictions).
This increase is largely attributable to the imports of medical and pharmaceuticals (mainly vaccines), home appliances (mainly televisions), and rubber tyres. Import expenditure on telecommunication devices recorded a slight decline.
Intermediate goods: Expenditure on the importation of intermediate goods in July 2021 increased by 33.8 percent over July 2020 with increases in most of the main categories. Base metals recorded the highest absolute increase in value due to an increase in expenditure on iron and steel.
Expenditure on fuel imports increased by 27.8 percent in July 2021 over July 2020 with the increase in the prices of refined petroleum and crude oil while their import volumes declined. The import expenditure per barrel of crude oil amounted to US dollars 68.92 in July 2021 compared to US dollars 46.23 in July 2020. Expenditure on textiles and textile articles also increased significantly.
Investment goods: Expenditure on the import of investment goods increased by 42.4 percent in July 2021 compared to the corresponding month in 2020, with substantial increases in almost every subcategory under the three types of investment goods, namely, machinery and equipment, building material and transport equipment.
Import expenditure on cement, however, nearly halved. Local cement production has been high since mid-2020 when some import restrictions were introduced, and remains high though restrictions were relaxed in June 2021.
Import indices: The import volume and unit value indices increased by 10.1 percent and 20.1 percent, respectively, on a year-on-year basis, in July 2021. This indicates that the increase in import expenditure, on a year-on-year basis, can be attributed to the combined impact of higher import volumes and prices.