Sri Lanka’s external sector recovered further in July 2020 supported by an increase in merchandise exports and increased workers’ remittances amid reduced merchandise imports.
Several notable achievements were observed in spite of the COVID-19 pandemic. Earnings from merchandise exports surpassed US dollars 1 billion in July for the first time since January 2020 and recorded a positive year-on-year growth for the first time since February 2020.
As expected, merchandise imports remained subdued with the continuation of restrictions imposed on the importation of non essential goods.
A substantial increase was observed in workers’ remittances in July 2020, recording the highest amount of monthly remittances since January 2018. Meanwhile, the level of gross official reserves of the country increased to US dollars 7.1 billion by end July 2020 with the receipt of the SAARC Finance swap facility from the Reserve Bank of India.
Net inflows to the domestic foreign exchange market eased the pressure on the exchange rate and enabled the Central Bank to absorb foreign exchange on a net basis to build up gross official reserves. Foreign outflows from the government securities market and the Colombo Stock Exchange (CSE) continued during the month, though at relatively low levels.
The deficit in the trade account narrowed by US dollars 509 million in July2020 to US dollars 209 million, from US dollars 717 million in July2019, as exports increased while imports recorded a decline.
Earnings from merchandise exports continued to increase to US dollars 1,085million in July 2020 From US dollars 894 million that was recorded in June 2020, with the gradual recovery of both domestic and global supply and demand chains and efforts by the government to support the export industries.
On a year-on-year basis, earnings from merchandise exports recorded a growth of 8.7 per cent in July 2020. Earnings from agricultural exports increased significantly in July 2020 on a year-on-year basis. Except unmanufactured tobacco and seafood, all subcategories of agricultural exports recorded increases. Earnings from tea recorded a growth for the second consecutive month in July 2020, with higher average export prices and volumes, compared to July 2019.
Industrial exports recorded a growth in July 2020, year-on-year, for the first time since February 2020.
The year-on-year declining trend observed in expenditure on merchandise imports since March 2020 continued in July 2020 as well, recording a decline of 24.6 per cent, to US dollars 1,294 million. The expenditure on intermediate goods imports declined in July 2020, year-on-year, led by fuel imports (-36.3%) and the importation of textiles and textile articles (-20.7%).
The expenditure on investment goods declined notably, with decline in all sub categories in July 2020, on a year-on-year basis, resulting from the restrictions imposed by the government to curtail import expenditure.
The expenditure on consumer goods declined led by non-food consumer goods imports, although the expenditure on food and beverages increased.
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