The external sector performance was driven by a double digit growth in exports (year-on-year) in September 2017, surpassing the US$ 1 billion mark of monthly exports for the third consecutive month. However, the trade deficit expanded with higher imports of fuel and rice during the month.
Earnings from tourism declined moderately during the month with a slightly lower number of tourist arrivals from key destinations compared to September 2016. The moderation in workers’ remittances continued in September, resulting in a noteworthy decline in workers’ remittances in the first nine months of 2017.
However, reflecting continuous investor confidence, the financial account of the Balance of Payments (BOP) continued to strengthen during the month with higher foreign inflows to the Colombo Stock Exchange (CSE) and the government securities market.
Subsequently, the overall balance recorded a surplus of US$ 2.0 billion by end September 2017. Meanwhile, gross official reserves increased to US$ 7.3 billion as at end September 2017 from US$ 6.0 billion as at end 2016.
The deficit in the trade balance widened in September 2017 while the cumulative trade deficit during the first nine months of 2017 also expanded when compared with the corresponding period of the previous year. This was mainly due to the additional import expenditure incurred due to the prevailed drought condition in the country.
Earnings from exports which grew since March 2017 continued its increasing trend in September 2017 as well.
This growth was mainly led by higher earnings from industrial exports owing to the increase in exports of textiles and garments as a result of improved garment exports to both the USA and EU market. In addition, earnings from rubber products rose reflecting higher earnings from rubber tyres and surgical and other gloves.
Meanwhile, earnings from agricultural exports continued to increase in September 2017 from the beginning of the year.
This was due to the improved performance in tea, owing to higher prices in the international market and a marginal growth in export volumes. Earnings from spices also increased considerably due to higher export volumes of pepper, cloves and cinnamon.
Reflecting the positive impact of the removal of the ban on exports of fisheries products to the EU market and the restoration of the GSP+ facility, earnings from seafood exports increased considerably with a 153% year-on-year growth in exports to the EU market.
However, earnings from transport equipment declined considerably in September 2017 vis-à-vis September 2016 reflecting the base effect of exportation of a cruise ship to Singapore in September 2016. The USA, the UK, India, Italy and Germany were the leading markets for merchandise exports of Sri Lanka in September 2017, accounting for about 51% of total exports.
Expenditure on imports increased in September 2017, recording a double digit growth for the third consecutive month as a result of higher expenditure incurred on intermediate goods, particularly fuel. Expenditure on fuel imports increased significantly due to the combined effect of high prices in the international market and higher volumes of fuel imported for thermal based power generation.
Despite the slower than expected improvement in the current account, the financial account of the BOP was strengthened during the month of September with continuous foreign inflows. Continuing the positive trend witnessed since March 2017, foreign investments to the government securities market recorded net inflows for the seventh consecutive month reflecting positive investor sentiment.
Meanwhile, foreign investments in the CSE recorded a net outflow (including both secondary and primary market foreign exchange flows) during the month of September, mainly due to a one-off transaction of a Sri Lankan conglomerate acquiring the foreign stake of a company operating in Sri Lanka.
As at end September 2017, Sri Lanka’s gross official reserves increased to US dollars 7.3 billion, equivalent to 4.2 months of imports.
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