The trade deficit for June 2008 amounted to US$ 504.5 million, an increase of 206.9 percent from June 2007. In May 2008 the trade deficit amounted to US$ 512.2 million while in January 2008, it amounted to US$ 610.8 million. The cumulative trade deficit for the period January to June 2008 amounted to US$ 3.083 billion, an increase of 92.4 percent for the corresponding period of 2007. The Central Bank said last week that private remittances during this period together with capital and financial inflows helped off set the deficit. "Private remittances which amounted to US dollars 1,460 million, and the higher capital and financial flows more than offset the deficit in the current account, as a result of which, the overall balance of payments recorded a surplus of US dollars 390 million by end-June 2008," the Central Bank said. "Consequently, the gross official reserves increased to US dollars 3,433 million by end June, 2008, up from U.S. dollars 3,062.5 million in December 2007, which was sufficient to finance around 3.1 months of imports." Export earnings amounted to US$ 654.6 million, a 1.9 decrease from US$ 667.3 million in June 2007, (export earnings in January and May 2008 amounted to US$ 489.5 million and 745.9 million respectively). The textiles and garments sector brought in US$ 262.8 million in export earnings in June 2008 (US$ 307.2 million in May and US$ 230.2 million in January 2008) which corresponded to an 8.9 percent decline from June 2007. Export earnings from minerals declined by 27.9 percent from US$ 11.3 million in June 2007 to US$ 8.1 million in June 2008. However, the earnings from the agricultural sector increase by 34.6 percent from US$ 119.8 million in June 2007 to US$ 161.3 million in June 2008 riding on export earnings from Tea which grew by 41.7 percent year on year. "The growth in earnings from tea, coconut and minor agricultural products negated the impact of the decline in industrial export earnings to some extent. Agricultural exports are expected to continue to perform better, in terms of volumes as well as prices, and industrial exports are expected to rebound from the one-off decline in June," the Central Bank said. Tea exports fetched US$ 117.2 million in June 2008 (January and May 2008 tea export earnings amounted to US$ 90.8 million and US$ 96.4 million respectively. Imports in June 2008 amounted to about US$ 1.16 billion, a 39.4 percent increase from US$ 831.7 million in June 2007 (the import bill in January and May 2008 amounted to US$ 1.17 billion and US$ 1.25 billion respectively). "While intermediate goods accounted for about 73 per cent of the growth in expenditure on imports in June 2008, imports of petroleum products accounted for 87 per cent of the increase in this sector," the Central Bank said. The Petroleum bill amounted to US$ 339.9 million in June 2008, a 159.3 percent increase from US$ 131.1 million in June 2007 (US$ 301.2 million and US$ 337.2 million in January and May 2008 respectively). "Expenditure on imports is expected to be lower during the rest of the year, as the petroleum prices continue to dwindle," the Central Bank said. The Bank said that fertilizer and diamonds were among the other intermediate imports that increased in June, 2008. "Expenditure on imports of consumer goods grew by 29.6 per cent, largely due to higher expenditure on food imports," it said. The consumer imports bill amounted to US$ 210.9 million in June 2008 (US$ 201.2 and US$ 238.3 million in January and May 2008). "Imports of investment goods grew by 17.7 per cent, with imports of machinery and equipment and building materials expanding. Higher growth in investment goods reflect the implementation of large scale infrastructure development projects funded by capital flows to the Government and the private sector by way of foreign direct investment," the Central Bank said. Exporters say that the country’s exchange rate did not reflect the trade deficit. They say that workers remittances and other capital inflows appreciates the rupee more than what it should be and together with high inflation and interests rates the export sector continues to struggle for its existence and create meaningful employment. However, the Central Bank maintains that the free-float exchange rate is not determined by trade alone as the remittances and other inflows form an integral part of the foreign currency markets. The Central Bank however intervenes to prevent extreme fluctuations of the exchange rate. Interventions in the market for this year have resulted in a net buying of dollars amounting to about US$ 329 million as at the early days of August. "And this has gone a long way to prevent the rupee from appreciating to as low as 103 to a dollar," Dr. Nandalal Weerasinghe, Chief Economist, the Central Bank, told the Island Financial Review earlier this month. |
