Sri Lanka’s external sector continued to recover in many aspects during January 2021, mainly supported by an improved trade deficit and a notable increase in workers’ remittances.
The reduced deficit in the trade account in January 2021 compared to January 2020 was the result of a larger decline in merchandise imports over merchandise exports. Meanwhile, workers’ remittances continued to record a notable growth in January 2021, strengthening the external current account. In the financial account, foreign investment in the government securities market recorded a marginal net inflow while the Colombo Stock Exchange (CSE) recorded net outflows in January 2021.
The Sri Lankan rupee experienced depreciation pressure in January 2021, but measures taken by the Central Bank and the continuation of restrictions on non-essential imports by the Government helped contain this pressure.
The deficit in the trade account narrowed in January 2021 by US dollars 63 million to US dollars 667 million, from US dollars 730 million recorded in January 2020, with a larger decline in imports compared to the decline in exports. In December 2020, the trade deficit was US dollars 562 million.
Earnings from merchandise exports in January 2021 were 8.0% lower compared to January 2020. Earnings from exports in January 2021 were recorded at US dollars 924 million compared to US dollars 1,005 million in January 2020 and US dollars 964 million in December 2020. Industrial exports: Earnings from the export of industrial goods declined by 11.4% in January 2021.
Export earnings from agricultural goods increased by 5.9% in January 2021 on a year-on-year basis, mainly due to the increase in the export of spices, such as cinnamon, pepper and cloves. Earnings from tea exports increased marginally due to the price increase, while volume exported had declined.
Merchandise imports declined by 8.3% in January 2021 compared to January 2020, continuing the year-on-year declining trend observed since March 2020.
Expenditure on merchandise imports amounted to US dollars 1,592 million in January 2021 compared to US dollars 1,735 million. The restrictions imposed by the Government on the importation of non-essential goods mainly contributed to this outcome.
Expenditure on the importation of consumer goods in declined by 7.0% compared to January 2020, due to the 27.9% decline in the “non-food consumer goods” imports, due to reduction in the import of personal vehicles.
With the reopening of the country’s borders to international tourists, tourist arrivals gradually picked up in January 2021. Accordingly, 1,682 arrivals were recorded in January 2021.
Remittances increased by 16.3% cent in January 2021, year-on-year, to US dollars 675 million from US dollars 581 million recorded in January 2020. Gross official reserves at end January 2021 amounted to US dollars 4.8 billion. This was equivalent to 3.7 months of imports.
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