The Central Bank said that the cumulative trade deficit for the period of January to May 2008 grew by 79.3 percent compared with the same period of previous year. The deficit for this period in 2007 was US$ 1.4 billion and is a little more than US$ 2.5 billion for 2008. Expenditure on imports for May 2008 grew by 24.2 percent and amounted to US$ 1.2 billion compared to US$ 1.01 billion recorded in May 2007. "Imports of petroleum continued to dominate the behavior of import expenditure," the Central Bank said. It said that petroleum imports made up 58.3 percent of the year-on-year increase in import expenditure in May. Food imports accounted for about 21 percent of this increase while the increase in investment goods accounted for 5.5 percent of the increase in import expenditure. "Imports excluding petroleum grew by 25.1 percent to US$ 4.3 billion during the January to May period of 2008," the Central Bank said. Export earnings in May 2008 amounted to US$ 746 million. This is a 17 percent increase from US$ 637.3 million recorded in May 2007. "Industrial exports largely contributed to this growth with export earnings from food, beverages and tobacco, diamonds and jewellery, garments and textiles, rubber, machinery and equipment and petroleum products expanding," the bank said. The Central Bank said that growth in export earnings were driven by the agricultural sector as a result of the surge in global food prices. "Agricultural exports continued to expand in May 2008 along with significant increases in earnings from tea and minor agricultural products and the continuous increase in minor agricultural products such as cinnamon, cloves fruit and vegetables," it said. The bank said that mineral exports which include gems declined in May 2008. They accounted for one percent of total exports. Exports in January to May 2008 amounted to US$ 3.2 billion, a growth of 12.6 percent from US$ 2.8 billion for the same period of the previous year. The Central Bank said that the overall balance of payments recorded a surplus of US$ 292 million in May. "This was sufficient to finance around 3.2 months of imports." During the Sri Lanka Economic Summit held earlier this month, exporters voiced their concerns that the exchange rate does not reflect the trade balance. This was because the Central Bank intervenes when necessary by buying dollars in order to avoid extreme fluctuations in the exchange rate. The result is that exports from Sri Lanka lose their competitiveness, especially when production costs are fueled by increasing energy costs, inflation and high interest rates. Their case is legitimate as real growth according to many economists is determined by the performance of the export sector. But as the trade balance clearly indicates, Sri Lanka is dependent on imports and if the exchange rate was not managed, inflation could end up being higher than it already is. |
