Sri Lanka’s trade deficit widens in December 2021 despite above US$ 1.0 billion of export earnings

Feb 11, Colombo: Sri Lanka’s trade deficit expanded in December 2021 mainly due to excessive surge in imports recording the highest ever monthly import expenditure, despite high exports earnings exceeding US$ 1.0 billion for the seventh consecutive month, the Central Bank reported Friday in its External Sector Performance review for the month.

Merchandise trade deficit widened to US$ 1.085 billion in December 2021, compared to US$ 562 million in December 2020.

The cumulative deficit in the trade account from January to December 2021 widened to US$ 8.136 billion from US$ 6 billion in the corresponding period of 2020. The major factors that contributed to the widening of the trade deficit are increase in imports of fuel, textiles and machinery & equipment.

Earnings from exports in December 2021 grew by 19.9 percent over December 2020 to reach US$ 1.156 billion. An increase in earnings was observed in all categories, while industrial exports mainly contributed to the expansion.

Earnings from the export of industrial goods increased by 21.3 percent in December 2021 to US$ 916.7 million, compared to US$ 755.5 million in December 2020.

Total earnings from the export of agricultural goods in December 2021 increased by 14.3 percent to US$ 232.3 million, compared to December 2020, mainly due to the increase in export earnings from tea, coconut, seafood, and spices.

Cumulative export earnings increased by 24.4 percent during January-December 2021, amounting to US$ 12.5 billion, compared to US$ 10 billion recorded for 2020.

Expenditure on merchandise imports in December 2021 increased substantially by 46.8 percent to US$ 2.241 billion, compared to US$ 1.527 billion recorded in December 2020 recording the highest ever monthly expenditure on imports.

Increases in import expenditure were observed across all main categories, while importation of intermediate goods contributed the most.

Total import expenditure in 2021 amounted to US$ 20.637 billion, recording an increase of 28.5 percent compared to the expenditure of US$ 16.055 billion recorded in 2020.

Earnings from tourism, which are estimated based on tourist arrivals, are estimated at US$ 261 million in 2021 compared to US$ 682 million in 2020.

Workers’ remittances decreased by 60 percent in December 2021, year-on-year, to US$ 325 million from US$ 813 million compared to December 2020. Workers’ remittances during the year declined by 22.7 percent, year-on-year, to US$ 5.491 billion.

A marginal net outflow of foreign investment was recorded in the government securities market in December 2021. Cumulative net outflows from the government securities market in 2021 amounted to US$ 27 million,.

Gross official reserves stood at U$ 3.1 billion at end December 2021. Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to US$ 6.1 billion at end December 2021.

Overall annual depreciation of the rupee in 2021 was limited to 7.0 percent against the US dollar. Meanwhile, the rupee recorded a depreciation of 0.8 percent against the US dollar this year up to 11 February 2022.