Industrial goods bolster exports; Imports dip below $ 1 b in Nov

First 11 months trade deficit balloons to U$$ 5.5 billion

Industrial goods bolstered exports to record a healthy growth in November while imports dipped below the US$ 1 billion mark for the first time in nine months according to latest external trade data released by the Central Bank last week.

Despite improvement in external trade, owing to previous weaknesses, the country’s trade deficit in the first 11 months of 2008 had ballooned to $ 5.5 billion. In November trade deficit contracted for the first time in 2008. The previous lowest import bill in 2008 was $ 960 million in February.

The Bank said notwithstanding the adverse circumstances brought about by the global economic downturn, exports grew by 11.6% in November 2008, year-on-year, to record earnings of $645 million. This was led by the 18.7% growth in the industrial exports, particularly the textiles and garments exports, which grew by 22.6%. While a major portion of these textiles and garments reached the USA (41%), a significant quantum was exported to the UK (27%) and the other European countries (23%). Within the industrial exports, the food, beverages and tobacco as well as the diamond and jewellery categories too performed well, compared to the corresponding period last year. However, year-on-year growth in many other sub-sectors, including machinery and equipment, subsided in November 2008 in view of the dampened global demand for goods and services.

Earnings from agricultural exports slumped by 8.1% in November 2008, year-on-year, largely due to issues in the tea and rubber sectors. Earnings from tea exports slumped by 10.8% mainly due to price reductions in the international market. However, the Colombo auction prices remains higher than at other auction centers. Despite the 10% increase in export volumes, earnings from rubber exports also dipped by 7.7% in November, year-on-year, due to the 16.1% reduction in prices. The minor agricultural crop exports, which have been a significant contributor to export earnings in recent times, depicted a reversal of its growth trend in November 2008, sliding 22.7%, year-on-year. Cumulative exports proceeds in 2008 amounted to $7,456 million, upto November, reflecting an increase of 9.7% over the previous year. The Government intervention in the form of a stimulus package will help shield the export industries from the impending global recession.

Imports, which have shown significant increases in recent months, have declined by 3.1% in November 2008, year-on-year to $977.7 million, over 50% of which was intermediate goods comprising textiles, petroleum products and fertilizers. Reflecting the trends in the petroleum sector, the expenditure on petroleum products decreased by 29.6% in November, year-on-year. The substantial increase in fertilizer imports in November, amounting to US 72 million, is largely due to enhanced import volumes. Consumer goods increased in November 2008, led by imports of wheat, which was not imported in the corresponding month of 2007. Imports of Investment goods subsided by 28.5% in November 2008, year-on-year, mainly due to the contraction in imports of machinery and equipment and building materials. The cumulative expenditure on imports during the first eleven month period amounted to $12,960 million, which reflects an increase of 27.9% over the corresponding period of 2007.

As a result, the trade deficit contracted for the first time in 2008, by 22.9% to $332.6 million in November 2008. The cumulative deficit in the trade balance expanded to $5,504 million during the first eleven months of the year, compared to the deficit of $3,338 million for the corresponding period previous year. The low import growth witnessed during the last two months is expected to prevail throughout a greater part of 2009.

Private remittances, which increased during the period January-November 2008 to $2,682 million, helped contain the current account deficit. Consequently, the gross official reserves with and without Asian Clearing Union (ACU) funds, recorded $2,608 million and $2,030 million respectively, by end November, 2008, which were sufficient to finance around 2.2 and 1.7 months of imports, respectively.