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Sri Lanka’s merchandise exports expand by 9.6%
August 31, 2017
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COLOMBO: The Central Bank of Sri Lanka (CBSL) has released a breakdown of the external sector performance. The data showed that merchandise exports expanded by 9.6 per cent on year-on-year basis to $1 billion, while imports contracted by 8 per cent to $1.5 billion. As a result, merchandise trade deficit narrowed in June.

At $554 million, the merchandise trade shortfall in the month was the lowest since July 2016, when it stood at $541 million.

The latest data will be welcomed by policymakers, as it offers some-if only temporary-respite for the outlook for macroeconomic stability. The Economist Intelligence Unit has long pointed out that Sri Lanka’s twin deficits on the fiscal and current accounts represent significant downside risks.

Although the fiscal deficit in 2017 has come down owing to the government’s commitment to fiscal consolidation, rising merchandise trade deficits led to a widening current-account shortfall in January-May. The June data therefore represent a reversal on its own, one data point does not signal a change in the overall trend.

CBSL believes that June data represents an aberration and that the merchandise deficit will widen again over the coming months. This view rests on a number of points. For instance, the key reason for the drop in imports in June was a sharp decline in the US dollar value of fuel imports, which is unlikely to be repeated on a consistent basis given the economy’s rising energy needs.

On the export side, an unusually strong performance of the transport equipment and food and beverages sectors lifted export receipts. This is again unlikely to be repeated on a consistent basis over the coming months. Furthermore, the performance of the economically vital textiles and garments sector remains tepid with little sign of improvement in sight.

CBSL data also shows weak growth of 4.5% year on year to $212 million in earnings from tourism in June. The bank expects the expansion of the tourism sector to accelerate, as a number of headwinds will fade in the second half of the year. Among others, this included runway repairs at the main international airport that led to capacity constraints earlier this year.

Meanwhile, the Sri Lankan rupee closed firmer as dollar sales by banks and exporters surpassed importer demand for the US currency, dealers said. The spot rupee ended at 152.75/82 per dollar, compared with Monday’s close of 152.90/95.

“There were banks and exporter dollar sales and less pressure on the imports,” said a currency dealer.

Reuters

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