Increased financial inflows bolstered Gross Official Reserves (GOR) during August 2021. Gross official reserves increased to USD 3.5 billion by the end of August 2021, from USD 2.8 billion at the end of July 2021.
This increase was due to the receipt of the SDR allocation of the IMF and the initial disbursements under the bilateral currency swap arrangement between the Central Bank of Sri Lanka and the Bangladesh Bank. This level of gross official reserves does not include the 3-year bilateral currency swap facility amounting to CNY 10 billion (approximately US dollars 1.5 billion) between the People’s Bank of China (PBoC) and the Central Bank of Sri Lanka.
Meanwhile, total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to US dollars 7.3 billion at the end of August 2021, providing an import cover of 4.6 months. However, the increase in import expenditure outpaced the increase of export earnings, resulting in an expansion of the trade deficit, compared to a year earlier.
Sri Lanka received the allocation of Special Drawing Rights (SDR) from the International Monetary Fund (IMF) as part of the general SDR allocation in 2021. Further, initial disbursements under the bilateral currency swap arrangement between the Central Bank of Sri Lanka and the Bangladesh Bank were received during August 2021. The deficit in the trade account widened on a year-on-year (y-o-y) basis to USD 586 million in August 2021, compared to the deficit of USD 342 million recorded in August 2020.
Earnings from exports in August 2021 grew by 16.2% over August 2020 to reach US dollars 1,100 million, reaching the highest level of exports recorded in August. Earnings from the export of industrial goods increased by 17.5% in August 2021, compared to August 2020.
Total earnings from the export of agricultural goods in August 2021 increased by 10.9%, compared to August 2020. Expenditure on merchandise imports increased by 30.8% to USD 1,687 million in August 2021, compared to USD 1,289 million recorded in August 2020. Expenditure on the importation of food and beverages increased by 12.3% in August 2021 with the increase primarily stemming from vegetables (mainly lentils and onions), dairy products (milk powder), seafood (mainly dried sprats and frozen fish), spices (chillies), and miscellaneous food and beverages. A significant decline was observed in the expenditure on sugar imports.
Expenditure on fuel imports increased by 42.5% with the increase in the prices of refined petroleum and crude oil imported, while their import volumes declined. The import expenditure per barrel of crude oil amounted to US dollars 74.88 in August 2021, compared to US dollars 47.74 in August 2020.
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Workers’ remittances decline marginally in August
Workers’ remittances amounted to US dollars 447 million during August 2021, in comparison to US dollars 664 million in August 2020 displaying a marginal decline of 2.8 %.
The Sri Lankan rupee depreciated by 4.8 % against the US dollar during August and pressures on the exchange rate were observed towards the end of the month, prompting the Central Bank to intervene in the foreign exchange market to stabilise the rupee. Tourist arrivals showed some increase in August 2021 over the previous month. Accordingly, tourist arrivals in August 2021 were recorded at 5,040, compared to 2,429 arrivals in July 2021. A total of 24,377 tourist arrivals were recorded during the eight months up to August 2021, compared to 507,311 arrivals in the corresponding period of 2020.
The main source countries for tourists in August 2021 were Canada, Germany and the United Kingdom. Earnings from tourism are estimated at USD 7 million in August 2021. Cumulative earnings from tourism are estimated at US dollars 33 million during the eight months up to August 2021, compared to US dollars 682 million recorded during the same period in 2020.
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