External sector performance – May 2022
Import spending fell, while export earnings increased in May 2022, year-on-year, extending the contraction of the trade deficit for the third consecutive month. Meanwhile, tourist arrivals slowed in May 2022, compared to the previous month. Workers’ remittances increased in May 2022 compared to April 2022.
Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) saw marginal net inflows in May 2022. Given the liquidity pressures seen in the domestic foreign exchange market, the Central Bank imposed liquidity requirements. cash margin in May 2022, while the government introduced restrictions on open accounts and consignment payment terms, among others. These measures were expected to reduce activity in the informal foreign exchange market and narrow the gap between official and gray market exchange rates. Meanwhile, the weighted average spot exchange rate in the interbank market remained stable at around Rs. 359 per US dollar during the month, helped by measures introduced to manage pressures in the domestic foreign exchange market, as well than market directions.
Merchandise trade balance and terms of trade
Trade balance: The trade deficit recorded a decline for the fifth consecutive month on a monthly basis and for the third consecutive month on an annual basis in May 2022, mainly supported by policy-induced import moderation, as well as the dynamics of significant growth in exports. The trade deficit narrowed to US$404 million in May 2022 from a deficit of US$716 million recorded in May 2021. On a cumulative basis, the trade deficit narrowed on an annual basis for the first times in May this year. As a result, the trade deficit from January to May 2022 narrowed to US$3,535 million from US$3,663 million recorded during the same period in 2021. The main factors contributing to this lower trade deficit cumulative 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 18.5% in May 2022 compared to May 2021, the increase in import prices having exceeded that of export prices. .
Performance of merchandise exports1
Overall Exports: Merchandise export receipts in May 2022 increased substantially by 17.5% compared to the corresponding month in 2021, amounting to $1,047 million. An increase in income was observed in industrial exports, while a decrease was recorded in agricultural exports and mineral exports. Cumulative export earnings from January to May 2022 increased by 12.2% compared to the same period last year, amounting to 5,266 million US dollars.
Industrial exports: Revenue from the export of industrial goods increased by 24.2% in May 2022, compared to May 2021. A generalized increase in revenue among industrial goods was recorded, with the largest share of overall increase being mainly due to clothing. The export of garments to all major markets (such as the United States, the European Union and the United Kingdom) has improved. Moreover, precious stones, diamonds and jewelry and petroleum products also contributed to this increase in exports. Earnings from the export of petroleum products have improved due to higher average export prices and bunker fuel export volumes. Meanwhile, continuing the decline in demand for rubber gloves as a personal protective item due to the decline in the spread of Covid-19 globally, a drop in revenue was reported in rubber products. . Export earnings from animal feed and plastics and articles also fell during the month.