The external sector performance remained subdued in August 2018. During the month the deficit in the trade account narrowed marginally compared to a year earlier as the rise in export income outpaced the growth in import expenditure.
Meanwhile, other inflows to the current account continued to be modest in August 2018 with a marginal increase in earnings from tourism and a decline in workers’ remittances.
On a net basis, the financial account of the Balance of Payments (BOP) recorded outflows during the month, due to withdrawals of foreign investments from both the government securities market and the Colombo Stock Exchange (CSE) and continued debt service payments. These developments, alongside the broad based strengthening of the US dollar, continued to exert pressure on the exchange rate to depreciate, thus necessitating intervention by the Central Bank in the domestic foreign exchange market to curtail undue excessive volatility in the exchange rate. As at end August 2018, gross official reserves amounted to US dollars 8.6 billion.
In August 2018, export earnings increased at a faster pace than the growth in import expenditure narrowing the deficit in the trade account marginally, on a year-on-year basis.
Nevertheless, on a cumulative basis, the trade deficit expanded during the first eight months of 2018 in comparison to the corresponding period of 2017. Surpassing US dollars 1 billion for the third consecutive month, Earnings from merchandise exports increased by 3.7 percent
(year-on-year) to US dollars 1,037 million in August 2018.
This growth was mainly driven by higher performance in industrial exports while agricultural and mineral exports declined. Under industrial exports, earnings from textiles and garments increased
in August 2018 reflecting increased demand from the USA and non-traditional markets such as India, Japan, Australia and Canada despite a decline in exports to the EU market. Further, export earnings from rubber products rose during the month due to the better performance in all sub categories, particularly rubber tyres.
Earnings from petroleum products increased substantially in August 2018 due to higher export prices of bunker and aviation fuel in line with rising fuel prices in the international market, although a reduction was recorded in export volumes.
Export earnings from food, beverages and tobacco also increased during the month due to the good performance in manufactured tobacco and vegetable, fruit and nuts preparations, particularly in coconut related products.
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