Merchandise trade deficit records notable contraction in August 2022

Financing essential imports exhausts liquid level of gross official reserves

As a result of earnings from exports increasing in August 2022 and import expenditure declining on a year-on-year basis, the merchandise trade deficit recorded a notable contraction in August 2022 compared to the previous year, according to Central Bank’s (CBSL) External Sector Performance report.

“Import expenditure declined in August 2022, on a year-on-year basis, for the sixth consecutive month despite recording an increase compared to July 2022. Considering the need to prioritise essential imports amidst shortage of forex liquidity, the Government tightened import restriction measures on non urgent imports during August 2022, which, however, were partially relaxed in September 2022,” the report said.

“Meanwhile, earnings from exports increased in August 2022 continuing its growth trend observed since April 2022. As a result, the merchandise trade deficit recorded a notable contraction in August 2022 compared to the previous year. Workers’ remittances increased in August 2022, compared to July 2022. Earnings from tourism recorded an increase in August 2022, compared to the same period in 2021.”

“During August 2022, foreign investments in the government securities market recorded a marginal net outflow, while that in the Colombo Stock Exchange (CSE) recorded a marginal net inflow.”

“The Central Bank continued to provide forex liquidity to finance essential imports, exhausting the liquid level of gross official reserves.”

“Meanwhile, the weighted average spot exchange rate in the interbank market remained around Rs. 361 per US dollar during the month”, the Central Bank report said.