Import expenditure continued to expand, in spite of high earnings from exports exceeding US dollars 1.0 billion for the eighth consecutive month, thereby widening the deficit in the trade account in January 2022, compared to January 2021.
Tourist arrivals showed a notable recovery in January 2022 over the same month in the previous year, while moderation of workers’ remittances was observed in January 2022. Meanwhile, Sri Lanka successfully settled the International Sovereign Bond (ISB) of US dollars 500 million in January 2022. The financial account of the balance of payments strengthened during the month with the receipt of the SAARCFINANCE swap facility from the Reserve Bank of India. The weighted average spot exchange rate, which remained in Rs. 200-203 range in January, adjusted upwards with greater flexibility allowed in the exchange rate with effect from 07.03.2022.
The deficit in the trade account widened to US dollars 859 million in January 2022, compared to the deficit of US dollars 655 million recorded in January 2021, with higher increase in imports.
However, trade deficit in January 2022 narrowed compared to the deficit of US dollars 1,085 million recorded in December 2021.
The ratio of the price of exports to the price of imports, deteriorated by 18.7 per cent in January 2022, compared to January 2021, with prices of imports having increased while prices of exports declining.
Earnings from exports in January 2022 grew by 17.5 per cent over January 2021 to reach US dollars 1,101 million, recording the highest level of exports in the month of January. While increases in earnings were observed across all main categories, industrial exports mainly contributed to the expansion. Industrial exports: Earnings from the exports of industrial goods increased by 21.6 per cent in January 2022 compared to January 2021, with broad-based increase was reported in almost all subcategories of Industrial goods, mainly in garments and petroleum products.
Export of garments to all major markets improved, except for the United Kingdom (UK). Earnings from the export of petroleum products increased due to the increase in both prices and volumes of bunker and aviation fuel exports.
Sizable increases were recorded in the exports of gems, diamonds and jewellery, base metals and articles, machinery and mechanical appliances (mainly electric conductors and transformers) and printing industry products (mainly currency notes), although earnings from ceramic products decreased.
Agricultural exports: Total earnings from the exports of agricultural goods in January 2022 increased by 2.3 per cent compared to January 2021, primarily due to the increase in export earnings from coconut (mainly desiccated coconut, fibres and coconut oil), seafood (mainly fresh and frozen tuna) and minor agricultural products (mainly areca nuts). The export of natural rubber, vegetables and unmanufactured tobacco also recorded marginal increases.
Meanwhile, export earnings from tea declined by 9.7 per cent (y-o-y) due to both lower export volumes and export prices while earnings from spices declined by 16.7 per cent (y-o-y), led by lower exports of cinnamon and cloves in January 2022. Mineral exports: Earnings from mineral exports increased by 24.0 per cent in January 2022 compared to January 2021, due to higher earnings from titanium ores, quartz and natural graphite powder.
Export indices: The export volume index increased by 20.1 per cent and unit value index decreased by 2.2 per cent, (y-o-y), in January 2022, indicating higher export volumes contributed to the increase in export earnings. Expenditure on merchandise imports increased by 23.1 per cent to US dollars 1,959 million in January 2022, compared to US dollars 1,592 million recorded in January 2021, although it decreased compared to December 2021. Increases in expenditure were observed across all main categories, while intermediate goods imports mainly contributed to the expansion.
Consumer goods: Expenditure on the importation of consumer goods increased by 4.2 per cent in January 2022 over the month of January 2021, due to increases in both food and non-food consumer goods. Import expenditure on food and beverages increased by 1.8 per cent (y-o-y), mainly owing to the importation of cereals and milling industry products (primarily rice). Expenditure on rice imports exceeded US dollars 119 million during the period from November 2021 to January 2022.
Meanwhile, decreases in import expenditure were observed in sugar, oils and fats (mainly coconut oil), vegetables (mainly masoor dhal), seafood (mainly dried sprats) and spices (mainly coriander seeds). The importation of non-food consumer goods increased by 6.8 per cent, led by the increase in the expenditure on medical and pharmaceuticals (mainly vaccines), clothing and accessories, and rubber products. However, the importation of telecommunication devices (mainly mobile telephones), home appliances (mainly televisions) and printed materials recorded decreases in January 2022 compared to January 2021.
Intermediate goods: Expenditure on the importation of intermediate goods increased by 32.5 per cent (y-o-y) in January 2022, driven mainly by fuel, textiles and textile articles (mainly fabrics), base metals (mainly iron and steel), wheat and plastics and articles thereof (mainly polymers in primary forms). Despite lower crude import volumes, expenditure on fuel imports increased by 38.9 per cent in January 2022, due to the increases of import prices as well as volumes of refined petroleum (including LP gas) and coal.
Average import price per barrel of crude oil was US dollars 84.09 in January 2022 compared to US dollars 57.65 in January 2021 and US dollars 85.38 in December 2021.
Meanwhile, import expenditure on food preparations (primarily palm oil), agricultural inputs (mainly animal fodder), fertiliser, and vehicle and machinery parts (mainly bicycle parts) declined during January 2022.
Investment goods: Expenditure on the importation of investment goods increased by 17.2 per cent in January 2022 compared to the same month in 2021, due to substantial increases in building materials 2 The classification of imports, based on the Standard International Trade Classification Revision 4, is presented in Annex II. 7 and machinery and equipment. Compared to the month of January 2021, import expenditure on all subsectors under building materials, except aluminium articles, increased in January 2022, led by iron and steel. Turbines, electric motors, and generating sets contributed mainly for the increase in expenditure on the importation of machinery and equipment, though a decline was recorded in transmission apparatus. Expenditure on importation of transport equipment declined mainly due to lower imports of tankers and bowsers. Import indices: The import volume and unit value indices increased by 2.3 per cent and 20.3 per cent, respectively, (y-o-y), in January 2022, implying that the increase in import expenditure in January 2022 was mainly driven by the price effect.
Other Major Inflows to the External Current Account Workers’ remittances: Workers’ remittances were recorded at US dollars 259 million during January 2022, in comparison to US dollars 325 million in December 2021 and US dollars 675 million in the corresponding period of the previous year. Total departures for foreign employment were recorded at 21,164 during the month of January 2022, contributed mainly by the skilled (6,248), unskilled (6,013), and domestic aid (5,999) categories. Tourist arrivals: Tourist arrivals were recorded at 82,327 in January 2022, compared to 89,506 arrivals recorded in December 2021. Russia, India, Ukraine, the UK, and Germany remained as the main source countries for arrivals in January 2022.
Earnings from tourism are provisionally estimated at US dollars 148 million for the month of January 2022, in comparison to US dollars 233 million in December 2021 and US dollars 4 million in the corresponding month in the previous year. As the Central Bank allowed greater flexibility in the exchange rate, a notable upward adjustment in the exchange rate is observed since March 2022. In the first two months of 2022, the Sri Lankan rupee was kept broadly stable, but it depreciated substantially thereafter, as a result of the Central Bank decision to allow greater flexibility in the determination of the exchange rate in first week of March 2022. Accordingly, during the year up to 01 April 2022, the rupee recorded a depreciation of 33.0 per cent against the US dollar. Meanwhile, reflecting cross-currency movements, the Sri Lanka rupee depreciated against the euro, the pound sterling, the Japanese yen, the Australian dollar and, the Indian rupee during the year up to 01 April 2022.