Trade deficit widens in May 2023 – CBSL

Highlights

• The cumulative trade deficit remained modest so far during 2023. The trade deficit in May 2023 widened, compared to a year ago, for the first time since February 2022.

• Workers’ remittances in May 2023 recorded higher than that of the previous month. Earnings from tourism recorded a robust growth despite being lower than April 2023 due to seasonal affects.

• There was a notable appreciation of the exchange rate by 8.8 per cent during May 2023.

• Foreign investments in the government securities market recorded a notable net inflow during May 2023.

• The receipt of USD 350 million from the Asian Development Bank (ADB) as well as substantial net purchases of forex by the Central Bank from the market, resulted in the gross official reserve level (GOR) increasing to about US dollars 3.5 billion by end May, compared to US dollars 2.8 billion as at end April 2023.

Merchandise Trade Balance

The deficit in the merchandise trade account amounted to US dollars 447 million in May 2023, compared to US dollars 403 million recorded in May 2022, recording a year-on-year expansion for the first time since February 2022. The cumulative deficit in the trade account during January to May 2023 was US dollars 1,926 million, a sizeable decline from US dollars 3,528 million recorded over the same period in 2022. The major contributory factors for this change in the trade balance are shown in Figure 1.

Performance of Merchandise Exports

Overall Exports: Earnings from merchandise exports declined by 2.7 per cent in May 2023, year-on-year, to US dollars 1,019 million, while increasing notably compared to April 2023. The decline in earnings from industrial exports mainly contributed to the decline in export earnings amidst improved agricultural exports. Meanwhile, cumulative export earnings during January to May 2023 recorded at US dollars 4,866 million, a decline of 7.7 per cent over the same period in the last year.

Industrial Exports: Earnings from the exports of industrial goods declined in May 2023, compared to May 2022, mainly due to the lower exports of garments to most of the major markets (the USA, the EU, and the UK). Similarly, a sizeable decline was recorded in the exports of petroleum products (led by lower export volumes and prices of bunker fuel exports), textiles (primarily, cotton fabric), printing industry products and transport equipment. However, earnings from animal fodder (mainly, wheat residues); machinery and mechanical appliances (mainly, mechanical appliances parts); food, beverages and tobacco; and gems, diamonds and jewellery increased in May 2023.

Agricultural Exports: Earnings from the exports of agricultural goods increased in May 2023, compared to a year ago, with a substantial share of increase being contributed by tea (led by higher average export prices and volumes). Meanwhile, an increase in earnings was reported in seafood (mainly, processed fish), spices (mainly, higher volumes of nutmeg and mace, and cinnamon), minor agricultural products (mainly fruits and areca nuts), unmanufactured tobacco, and vegetables. However, the export of subcategories of coconut (primarily, fibres, desiccated coconut and coconut oil) and natural rubber recorded a decline in May 2023, compared to the previous year.

Mineral Exports: Earnings from mineral exports declined in May 2023, compared to May 2022, mainly due to the decline in exports of ores, slag, and ash.

Performance of Merchandise Imports

Overall Imports: Expenditure on merchandise imports increased marginally to US dollars 1,466 million in May 2023, compared to US dollars 1,451 million in May 2022, recording the first year-on-year increase since February 2022. The increase in expenditure of consumer goods contributed to the increase in import expenditure amidst the decline in expenditure on intermediate and investment goods imports. Ongoing recovery in economic activities mainly contributed to the increase in import expenditure while the gradual relaxation of import restrictions could generate higher import expenditure in the period ahead. Meanwhile, cumulative import expenditure during January to May 2023 declined by 22.8 per cent over the corresponding period in 2022.