Sri Lanka’s earnings from exports increased in July 2022, while import expenditure declined for the fifth consecutive month on a year-on-year (Y-O-Y) basis, the Central Bank of Sri Lanka says.

As per data released by the Economic Research Department of the Central Bank on the external sector performance in July 2022, the island’s cumulative export earnings increased by 12.9% to USD 7,678 million between January and July this year, in comparison to USD 6,803 million recorded in the corresponding period in 2021.

Earnings from merchandise exports grew by 5.4% in July 2022, over July 2021 to USD 1,164 million. An increase in earnings was observed in industrial exports, while a decline was recorded in agricultural and mineral exports.

Import expenditure:

Meanwhile, expenditure on merchandise imports declined substantially by 24.8% cent to USD 1,287 million in July 2022, compared to USD 1,710 million in July 2021.

A decline in expenditure was observed in all categories, with the imports of investment goods and non-food consumer goods contributing the most to this decline.

Meanwhile, import expenditure on a cumulative basis from January to July 2022 amounted to USD 11,315 million, which is a decline of 3.5 per cent (Y-O-Y). 

Trade balance:

According to the Central Bank, the notable decline in import expenditure in July 2022 reflected the impact of the overall moderation of activity amidst forex liquidity strains in the banking system, while the policy measures to curtail non-urgent import expenditure also helped to contain import demand pressures.

As a result, the trade deficit recorded a notable contraction in July 2022 over the year, thereby easing stresses in the domestic foreign exchange market.

The balance in the merchandise trade account recorded a deficit of USD 123 million in July 2022, compared to the deficit of USD 606 million recorded in July 2021.

The cumulative deficit in the trade account during January-July 2022 narrowed to USD 3,637 million from USD 4,922 million recorded over the same period in 2021.

Workers’ remittances:

The Central Bank further said the workers’ remittances increased marginally in July 2022 to USD 279 million, compared to June 2022 which amounted to USD 274 million, and remained in excess of the trade deficit, thereby supporting the forex liquidity conditions under severe balance of payments pressures.

Meanwhile, total departures for foreign employment were recorded at 22,821 during the month of July 2022. Total departures of foreign employment comprised unskilled (8,232), skilled (7,091) and domestic aid (4,479) categories. Total departures for foreign employment during January-July 2022 were recorded at 163,522, compared to 37,041 in the corresponding period of the previous year, and a total of 117,952 in 2021.

Tourist arrivals:

According to the Central Bank’s data, earnings from tourism recorded an increase in July 2022 (Y-O-Y) on the low base. Tourist arrivals rose in July 2022 to 47,293 from 32,856 recorded in June this year.

Unfavourable conditions, such as fuel shortages, power outages, and travel advisories issued by certain countries however continue to impact tourist arrivals. The United Kingdom, India, Germany, and France remained the main source countries for tourist arrivals in July 2022, the Central Bank said further.

Earnings from tourism in the month of July 2022 are estimated at USD 85 million, in comparison to USD 59 million in the previous month, and USD 6 million in the corresponding month in the previous year.

Financial Flows:

Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded a marginal net inflow during July 2022, resulting in a cumulative net inflow of US dollars 7 million to the government securities market during January-July 2022.

Meanwhile, foreign inflows to the Colombo Stock Exchange (CSE), including primary and secondary market transactions, recorded a marginal net inflow in July 2022.

On a cumulative basis, the CSE, including primary and secondary market transactions, recorded a net inflow of foreign investments amounting to US dollars 95 million during the seven months ending July 2022.

International reserves:

According to the Central Bank, the gross official reserves stood at USD 1.8 billion as at end July 2022. This included the swap facility from the People’s Bank of China, equivalent to around US dollars 1.5 billion, which is subject to conditionalities on usability.

The Central Bank says it continued to supply forex liquidity to finance essential imports by utilising inflows to gross official reserves. Consequently, the level of usable reserves continues to remain at significantly low level by end of July 2022. Total foreign assets, which consist of gross official reserves and gross foreign assets of the banking sector, amounted to US dollars 5.9 billion at end July 2022.