The import expenditure declined, while earnings from exports increased in May 2022, year-on-year, extending the contraction in the trade deficit for the third consecutive month.
Tourist arrivals slowed in May 2022, compared to the previous month. Workers’ remittances increased in May 2022, compared to April 2022.
Foreign investment in the Government securities market and the Colombo Stock Exchange (CSE) recorded marginal net inflows during May 2022. Considering the liquidity pressures witnessed in the domestic foreign exchange market, the Central Bank imposed cash margin requirements in May 2022, while the Government introduced restrictions on open accounts and consignment payments terms, among others.
These measures were expected to curtail activity in the informal foreign exchange market and narrow the gap between the official and grey market exchange rates.
Meanwhile, the weighted average spot exchange rate in the interbank market remained stable around Rs. 359 per US dollar during the month, helped by the measures introduced to manage pressures in the domestic foreign exchange market, along with the market guidance.
The trade deficit recorded a decline for the fifth consecutive month on month-on-month basis and for the third consecutive month on year-on-year basis in May 2022, supported mainly by the policy induced moderation of imports, along with the notable growth momentum of exports.
The trade deficit narrowed to US dollars 404 million in May 2022, compared to the deficit of US dollars 716 million recorded in May 2021. On a cumulative basis, trade deficit narrowed on a year-on-year basis for the first time in May during this year. Accordingly, the trade deficit during January-May 2022 narrowed to US dollars 3,535 million, from US dollars 3,663 million recorded over the same period in 2021
Earnings from merchandise exports in May 2022 increased substantially by 17.5 percent over the corresponding month in 2021, recording US dollars 1,047 million.
An increase in earnings was observed in industrial exports, while a decline was recorded in agricultural exports and mineral exports.
The cumulative export earnings during January-May 2022 increased by 12.2 percent over the same period in the last year, amounting to US dollars 5,266 million.
Industrial exports: Earnings from the export of industrial goods increased in May 2022 by 24.2 per cent, compared to May 2021. A broad-based increase in earnings among industrial goods has been recorded, with the greatest share for the overall increase mainly being contributed by garments.
Export of garments to all major markets (such as the United States, the European Union, and the United Kingdom) improved. Further, gems, diamonds and jewellery and petroleum products also contributed to this increase in exports.
Earnings from the export of petroleum products improved due to the increase in both average export prices and volumes of bunker fuel exports. Meanwhile, continuing the lower demand for rubber gloves as a personal protective item due to declining spread of Covid-19 worldwide, a decline in earnings was reported in rubber products. Export earnings from animal fodder and plastics and articles also declined during the month. Agricultural exports: Total earnings from the exports of agricultural goods in May 2022 declined by 4.2 per cent, compared to May 2021.
This decline was mainly attributed to exports of tea, spices, unmanufactured tobacco, and vegetables. Export earnings from tea in May 2022 declined by 14.2 per cent (year-on-year), due to the decline in volume of tea exported.
Earning from spices declined by 16.2 per cent in May 2022 due to lower export volumes of spices, except cinnamon. However, the export of subcategories of minor agricultural products (primarily, arecanuts), coconut related products (primarily, fibres and coconut oil), seafood, and natural rubber recorded an increase in May 2022, compared to the previous year.