Sri Lanka’s trade deficit continued to contract due to a drop in export earnings and reduced expenditure on imports.

This trend has continued for the fourth consecutive month, Central Bank sources said.

Private remittances , though marginally lower helped to build up a more favourable trade deficit.

Among the export earnings which were effected were all major sectors, while tea continued to perform well.

Earnings from coconut kernels increased despite a drop in prices, while rubber exports earnings decreased an increase in the volume of exports.

Details of individual performances are given below as stated in a Central Bank release.

Although both earnings from exports and expenditure on imports, declined during the month, the reduction in imports outweighed the reduction in exports, largely due to the lack of demand for imported goods and the lower import prices compared to those that prevailed at around this time of the year, last year, in the midst of an international commodity price boom. The cumulative trade deficit decreased by 61.5 per cent to US dollars 806 million during the first four months of 2009 from US dollars 2,091 million in the corresponding period of 2008. Private remittances, reached US dollars 1,034 million during the first four months of 2009, compared to US dollars 1,047 million in the corresponding period of 2008. As a result, remittances during the first four months were US dollars 228 million (about 28 per cent) in excess of the trade deficit.

Export earnings dropped by 28.2 per cent in April 2009, to US dollars 438 million, reflecting reductions in all major sectors. Within the agricultural exports, however, tea continued to perform well, in terms of prices. At US dollars 3.99 per kg, the export price of tea was almost on par with the US dollars 4.00 it fetched around this part of the year last year at the height of the commodity price boom. The reduction in earnings from tea exports in April, however, was largely due to the lower export quantities, which could be attributed to lower global demand, and the effect of drought conditions. Earnings from exports of coconut kernels increased by 34.8 per cent to US dollars 3 million despite the 43.4 per cent decline in the prices. Earnings from rubber exports decreased by 36.1 per cent in April, despite the 16.7 per cent increase in export volumes, largely due to the significant decline in export prices over the same period last year, when natural rubber was attracting a premium price. Among the industrial exports, the earnings from the textiles and garments sub sector declined by 10.1 per cent to US dollars 227 million in April 2009. Despite the confidence expressed by the industry of having confirmed orders, some orders were canceled or postponed amidst uncertainties about the strength and duration of the global economic downturn. Demand from the European Union declined by 17.6 per cent to US dollars 103 million while demand from the US picked up by 4.4 per cent to US dollars 103 million during April 2009. The cumulative earnings from exports declined by 16.2 per cent to US dollars 2,085 million.

Expenditure on imports declined by 53.5 per cent to US dollars 604 million in April 2009 in view of the reduced demand, reflecting the slowing down in economic activity amid global recession, despite the significantly lower prices of major commodity imports. Consumer goods declined by 48.2 per cent, due to lower expenditures incurred on imports of sugar, wheat grain, milk products, and other food items. Following the upward trend in sugar prices in the international market, the import price of sugar increased by 16.3 per cent in April 2009. Among the non-food consumer items, imports of motor vehicles and electrical appliances declined by 80.1 per cent and 63.7 per cent respectively. Expenditure on intermediate goods also declined by 58.2 per cent to US dollars 349 million, led by lower petroleum and fertilizer imports. Import price of crude oil averaged at US dollars 54 per barrel in April 2009. Imports of textiles and diamonds also declined, by 26.3 per cent and 35.7 per cent respectively, reflecting the lackluster global demand conditions. Expenditure on investment goods declined by 44.1 per cent to US dollars 127 million in April 2009. The cumulative expenditure on imports declined by 36.9 per cent to US dollars 2,891 million.

The gross official reserves, with and without Asian Clearing Union (ACU) funds, recorded US dollars 1,471 million and US dollars 1,296 million respectively, by end April 2009. These include deposits of US dollars 165 million placed with two domestic banks. Based on the previous 12 month average imports (US dollars 1,060 million per month), these reserve values are equivalent to 1.4 and 1.2 months of imports, respectively. However, in view of the current and expected low imports, resulting from the sharp reduction in the oil and petroleum product import bills, the actual equivalent number of months of imports would be much higher. The foreign exchange inflows have also responded favorably to the positive outlook brought about by the end to the three decades of conflict.

In the meantime, the Central Bank is in the process of building up its official reserves to a more comfortable level by absorbing foreign exchange from the market. Since May 2009, it has absorbed US dollars 367 million from the market (upto 19th June 2009). In addition the Sri Lanka Development Bonds (SLDBs) offered on 15th June 2009 was substantially oversubscribed by 236 per cent mobilizing an additional US dollars 66 million for gross official reserves. The positive trend has helped the Central Bank to remove the restrictions that were imposed on