External Sector Performance - November 2020

Economic Research Department

15 January 2021

External Sector Performance - November 2020

The CBSL publishes a 'Monthly Trade Bulletin', with further information on merchandise trade performance, which can be viewed at Central Bank of Sri Lanka's website under Statistics > Economic Indicators > Monthly Trade Bulletin. https://www.cbsl.gov.lk/en/monthly-trade-bulletin

1

Overview

Amidst a decline in earnings from exports, a number of positive developments were observed in the external sector in November 2020, including a lower trade deficit, and a notable increase in workers' remittances. Merchandise imports continued to decline supported by the continuation of restrictions on non-essential imports and low global oil prices. There was a notable decline in merchandise exports in November compared to previous months due to disturbances to domestic production processes with the second wave of the COVID-19 pandemic. Workers' remittances continued to record a growth in November as well. In the financial account, both foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded marginal net outflows in November 2020. The level of gross official reserves amounted to US dollars 5.6 billion at end November 2020, while the Sri Lankan rupee depreciated against the US dollar marginally during the month of November 2020.

Table 1: Summary of External Sector Performance (a)

				Nov			Nov			Change			Jan-Nov			Jan-Nov			Change
	Category			2019			2020					2019			2020
							(%)							(%)
				US$ mn			US$ mn					US$ mn			US$ mn
Merchandise Exports	979		819		-16.3		10,940	9,113		-16.7
	Merchandise Imports			1,741			1,384			-20.5			18,153			14,529			-20.0
Trade balance	-762		-565					-7,213	-5,416
	Earnings from tourism			334 (b)			-			-			3,151 (b)			956 (c)			-69.7
Workers' remittances	515		612		18.7		6,052	6,291		3.9
	Inflows to the CSE (net) (d)			-36			-15						-30			-209
Inflows to the Government (gross)	191		87					6,457	1,899
	Treasury bills and bonds (gross)			69			1						580			103
	Long term loans (gross)	121		86					1,477	1,795
	International Sovereign Bonds (gross)			-			-						4,400			-
Foreign Direct Investment (gross)(e)										793	548
	Overall Balance												488			-2,203

Sources: Sri Lanka Customs (SLC), Sri Lanka Tourism Development Authority (SLTDA), Colombo Stock Exchange (CSE), Board of Investment of Sri Lanka (BOI), Central Bank of Sri Lanka (CBSL)

1. Provisional
2. Revised, based on survey results of SLTDA on average stay period and average spending per day estimates for 2019.
3. This provisional estimate may be revised once SLTDA releases its survey results for 2020.
4. Include primary and secondary transactions.
5. Data available for the first nine months of each period and includes foreign loans to Direct Investment Enterprises as recorded by the BOI and net direct investment to the CSE.

2

Trade Balance and Terms of Trade

The deficit in the trade account narrowed in November 2020 by US dollars 198 million to US dollars 565 million, from US dollars 762 million recorded in November 2019, due to a larger decline in imports compared to the decline in exports.

Further, the cumulative deficit in the trade account from January to November 2020 narrowed to US dollars 5,416 million from the deficit of US dollars 7,213 million recorded in the same period in 2019. The major contributory factors for this outcome are depicted in Figure 1.

Terms of trade, i.e., the ratio of the price of exports to the price of imports, improved by 0.6 per cent in November 2020, compared to November 2019, with import prices declining more than export prices.

Figure 1: Major Contributory Factors for the decline in the Trade Deficit

January - November 2020, in US$ mn

		Decline in imports Increase in Exports
Plastics and articles thereof
		102.6
Minor agricultural products			21.9
Food beverages and tobacco			11.8
Coconut			10.7
Spices			9.0
Machinery and equipment		-286.3
Personal vehicles		-449.3
Building material		-460.8
Textiles and textile articles		-560.8
Fuel	-1,250.9
			Sources: SLC, CBSL
Figure 2: Monthly Trade Deficit (2019 - 2020)	Figure 3: Terms of Trade (2019 - 2020)

US$ mn

120

900

2019

2020

(2010=100)

110

800

700

100

600

Points

90

500

80

400

Index

300

70

200

60

Oct-19

Nov-19

Dec-19

Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

0

100

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Export Unit Value Index

Import Unit Value Index

Terms of Trade

Sources: SLC, CBSL

Source: CBSL

3

Performance of Merchandise Exports

Overall exports: Earnings from merchandise exports suffered in November 2020 due to the resurgence of COVID-19 cases in Sri Lanka and abroad. Earnings from exports declined by 16.3 per cent to US dollars 819 million in November 2020, compared to November 2019. This was a 3.4 per cent decline compared to October 2020. Measures imposed to combat the second wave of the pandemic locally affected production in key export sectors, garments in particular. Further, the second wave of the pandemic experienced in export markets affected demand for exports, while significant disruptions to global shipping and logistical chains also affected local businesses negatively.

Industrial exports: Earnings from the export of industrial goods declined by 19.6 per cent in November 2020 compared to November 2019, mainly due to the 37.2 per cent decline in garment exports. Health related restrictions in factories contributed significantly to this outcome. Meanwhile, earnings from the export of petroleum products declined significantly due to the reduction in bunkering quantities as well as prices. While exports of a number of smaller factory-based export sectors also declined, export earnings from some industrial export categories increased. The latter included; gems, diamonds and jewellery; rubber products (with increased exports of tyres and gloves); and plastics and articles thereof (with increased exports of personal protective equipment such as plastic clothing articles).

Agricultural exports: Export earnings from agricultural goods declined by 2.3 per cent in November 2020 compared to November 2019, due to a reduction in the export of seafood, minor agricultural products (fruits, edible nuts, betel leaves, etc.) and tea. Earnings from tea exports declined by 5.2 per cent, with declines in volumes of black and green tea exported, while unit prices of both types marginally increased. Agricultural exports that displayed an increase in earnings were spices (led by cinnamon and pepper), coconut (mainly coconut oil and non-kernel products) and rubber.

Mineral exports: Mineral exports declined by 4.4 per cent in November 2020 compared to November 2019. Exports of earth and stone declined, while exports of ores, slag and ash increased.

Export indices: The export volume index declined by 7.9 per cent while the unit value index declined by 9.1 per cent on a year-on-year basis in November 2020. This indicated that the decline in export earnings was caused by both lower volumes and lower prices.

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