Revised performance of the external sector – February 2022 – The island
The momentum in export earnings continued with over US$1.0 billion for the ninth consecutive month in February 2022. Meanwhile, import spending also increased substantially in February 2022, year-on-year , while registering a decrease compared to the previous month. The trade deficit widened compared to the previous year. Tourist arrivals showed a notable recovery in February 2022 compared to the same month of the previous year. Workers’ remittances continued to moderate in February 2022. Foreign investment on the Colombo Stock Exchange (CSE) saw a sharp inflow during the month. The weighted average spot exchange rate in the interbank market hovered around Rs. 202 per US dollar in February 2022.
However, the Central Bank allowed a measured adjustment in the exchange rate in the first week of March 2022, given increased pressures on the exchange rate amid low liquidity in the domestic foreign exchange market, leading to an overshoot. subsequent market forces beyond the level of depreciation expected in the measured adjustment.
Merchandise trade balance and terms of trade
Trade balance: The trade account deficit widened to US$781 million in February 2022 from a deficit of US$572 million recorded in February 2021. However, on a monthly basis, the trade deficit narrowed in February 2022 against US$859 million recorded in January 2022. Meanwhile, the cumulative trade account deficit from January to February 2022 widened to US$1,640 million from US$1,227 million recorded over the same period in 2021 The major contributing factors to the trade deficit are shown in Figure 1.
Terms of trade: the terms of trade, i.e. the ratio between the price of exports and the price of imports, deteriorated by 10.7% in February 2022 compared to February 2021, the increase in import prices having exceeded that of export prices.
Merchandise export performance
Overall Exports: Merchandise export revenue in February 2022 increased by 14.7% compared to February 2021, recording US$1,092 million. An increase in income was observed in industrial exports and mineral exports, while a decrease was observed in agricultural exports. Cumulative export earnings, which increased by 16.1% from January to February 2022 compared to the same period last year, amounted to 2,192 million US dollars. Industrial exports: receipts from the export of industrial goods increased in February 2022 by 19.4%, compared to February 2021. This increase is due to a general increase in the receipts of most industrial products, mainly clothing and petroleum products. Clothing exports to all major markets have improved.
Revenues from the export of petroleum products increased due to higher prices and volumes of bunker and aviation fuel exports. In addition, a significant increase was recorded in exports of food, beverages and tobacco (mainly manufactured tobacco, chocolate and liquid coconut milk), base metals and articles (mainly tools and aluminum structures), rubber products (mainly solid tires and rubber surgical gloves), precious stones, diamonds and jewelry, machinery and mechanical appliances (mainly parts of mechanical appliances and electrical conductors). However, a marginal drop in revenue was reported in personal protective equipment (PPE) categories, such as masks, textile items and plastic clothing items classified under plastics and articles, reflecting lower demand. for these items.
Agricultural exports: Total agricultural export earnings in February 2022 decreased by 2.1% compared to February 2021, due to lower export earnings from tea, spices and unmanufactured tobacco. The decline in tea export earnings of 10.4% (year-on-year) was mainly due to lower export volumes (a decline of 9.1%), while average export prices ( a decrease of 1.4%) also contributed in part to this decline. Spices revenue decreased by 18.3% (year-on-year) in February 2022 due to lower export volumes of cloves, cinnamon and nutmeg. Adverse weather conditions and the shortage of chemical fertilizers were the main reasons for the decline in export volumes of agricultural products in general. . However, the export subcategories of seafood (mainly fresh and frozen tuna), coconut (mainly fiber and desiccated coconut), natural rubber, minor agricultural products and vegetables recorded an increase in February 2022 compared to the previous year.
Mineral Exports: Mineral export revenue increased by 12.7% in February 2022, compared to February 2021, due to higher revenue from quartz, titanium ores and granite. Export indices: Export volume and unit value indices increased by 11.2% (by industrial exports) and 3.1% respectively (year-on-year) in February 2022, indicating that the increase in volumes export contributed more to the increase in export earnings.
Performance of merchandise imports
Overall Imports: Merchandise import expenditure increased by 22.9% to US$1,873 million in February 2022, from US$1,524 million recorded in February 2021, while registering a decrease compared to December 2021 and January 2022. An increase in expenditure was recorded. observed in all major categories, with imports of intermediate goods contributing mainly to the expansion. On a cumulative basis, total import expenditure amounted to US$3,832 million during the period January to February 2022, registering an increase of 23.0%, compared to US$3,115 million recorded in during the corresponding period in 2021.
Consumer goods: Import spending on consumer goods increased in February 2022 by 9.5% compared to February 2021, driven by increased spending on food and beverages, although spending on consumer goods non-food consumption fell. Food and beverage import expenditure increased by 22.5% (year-on-year), mainly due to the import of cereals and milling products (mainly rice). In addition, an increase in import expenditure was observed for spices (mainly chillies), vegetables (mainly large onions and potatoes), seafood (mainly dried fish) and beverages, while due to low import volumes, import expenditure on oils and fats (mainly coconut oil), sugar and dairy products (mainly powdered milk) declined.