Trade deficit records notable contraction in July

COLOMBO (News 1st); Earnings from exports increased in July 2022, while import expenditure declined for the fifth consecutive month, on a year-on-year basis. 

The notable decline in import expenditure in July 2022 reflected the impact of overall moderation of activity amidst forex liquidity strains in the banking system, while the policy measures to curtail non-urgent import expenditure also helped to contain import demand pressures. 

As a result, the trade deficit recorded a notable contraction in July 2022 over the year, thereby easing stresses in the domestic foreign exchange market. 

Sri Lanka’s monthly imports fell to an 11-year low to 1,287 million US dollars in July 2022, the lowest since 1,236 million US dollars recorded in February 2011 as interest rates went up, credit slowed, and financial account inflows dried up.

Sri Lanka exports were 1,164 million US dollars in July and official remittances were 279 million US dollars and an estimated 85 million dollars in tourism revenues totaling 1,528 million US dollars, lower than the imports.

Workers’ remittances increased marginally in July 2022, compared to June 2022, and remained over the trade deficit, thereby supporting the forex liquidity conditions under the severe balance of payments pressures. 

Earnings from tourism recorded an increase in July 2022 (year-on-year) on the low base. 

Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded a marginal net inflow during July 2022. The Central Bank continued to provide forex liquidity to finance essential imports, exhausting the usable level of gross official reserves. 

Meanwhile, the weighted average spot exchange rate in the interbank market remained around Rs. 361 per US dollar during the month.