External Sector Performance – March 2023

The deficit in the merchandise trade account narrowed to US dollars 412 million in March 2023, from US dollars 761 million in March 2022, mainly due to the subdued level of imports, compared to a year earlier. However, the trade deficit in March 2023 widened significantly, compared to February 2023, reflecting the increase in imports due to seasonal demand. The cumulative deficit in the trade account during January-March 2023 was US dollars 861 million, declined from US dollars 2,397 million recorded over the same period in 2022. The major contributory factors for this change in trade balance are shown in Figure 1.

Overall Exports: The merchandise exports recovered in March 2023 recording over US dollars 1 billion for the first time during 2023. However, earnings from merchandise exports declined marginally by 2.0 per cent in March 2023, year-on-year, to US dollars 1,037 million. The decline in earnings from industrial exports, including garments, mainly contributed to the decline in export earnings in March 2023, compared to a year earlier. Meanwhile, export earnings have improved on a month-on-month basis mainly due to higher exports of gems, diamonds and jewellery and rubber products. Cumulative export earnings during January-March 2023 recorded at US dollars 2,998 million, a decline of 7.9 per cent over the same period in the last year.

Industrial Exports: Earnings from the exports of industrial goods declined in March 2023, compared to March 2022, with a significant share of the decline being contributed by garments. Accordingly, exports of garments to most of the major markets (the USA, the EU and the UK) recorded declines. Earnings from the export of petroleum products decreased due to the decline in the average export prices of bunker fuel exports. In contrast, earnings from machinery and mechanical appliances (mainly, machinery and equipment parts); gems, diamonds, and jewellery; and rubber products (mainly, rubber tires) increased in March 2023.

Agricultural Exports: Earnings from the export of agricultural goods increased in March 2023, compared to a year ago, mainly due to the increase in earnings from tea, spices (primarily, cinnamon and cloves) and seafood (primarily, processed fish). Earnings from tea exports improved due to the increase in average export prices of tea although the volume continued its declining trend owing to the lagged effect of fertiliser shortages. However, there was a decline in export earnings from coconut related products (primarily, desiccated coconut and fibres), minor agricultural products (primarily, arecanuts) and natural rubber in March 2023.

Mineral Exports: Earnings from mineral exports increased in March 2023, compared to March 2022, mainly due to the increase in exports of granite under earths and stone.

Overall Imports: Import expenditure increased significantly to US dollars 1,450 million in March 2023, compared to US dollars 1,021 million in February 2023, due to seasonal demand and the partial recovery in fuel imports. However, continuing the year-on-year declining trend since early 2022, the import expenditure declined by 20.3 per cent in March 2023. The year-on-year decline in expenditure was observed in all major import sectors, although the decline in intermediate and investment goods was substantial. Meanwhile, cumulative import expenditure during January-March 2023 declined by 31.7 per cent over the corresponding period in 2022.

Consumer Goods: Expenditure on the importation of consumer goods declined in March 2023, compared to a year ago, due to lower expenditure on food and beverages imports although non-food consumer goods imports recorded a marginal increase. The decline in import expenditure on food and beverages goods was broad-based, with a notable drop in imports of cereals and milling industry products (mainly, rice), dairy products, spices and fruits. In contrast, expenditure on non-food consumer goods increased marginally due to higher medical and pharmaceuticals (mainly, medicaments), while most of other subcategories declined, compared to March 2022.

Intermediate Goods: Expenditure on the importation of intermediate goods declined in March 2023, compared to a year ago, driven by lower imports of fuel, plastics and articles thereof, and textiles and textile articles (primarily, fabrics). However, almost all subsectors under intermediate goods increased in March 2023, compared to the previous month, in that import expenditure on fuel increased by over 90 per cent, month-on-month. A sizable decline was recorded in the importation of rubber and articles thereof, base metals (primarily, iron and steel) and chemical products. However, the categories of intermediate goods that recorded an increase include wheat, fertiliser and agricultural inputs (primarily, animal fodder), compared to a year ago.

Investment Goods: Import expenditure on investment goods declined significantly in March 2023, compared to March 2022. Almost all types of goods listed under the three main investment good categories, namely machinery and equipment, building material and transport equipment, recorded a decline. (CBSL)