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Sri Lanka narrows trade deficit achieving new high in exports

Sri Lanka has narrowed the trade deficit to US $ 553 million in November 2021, compared to the deficit of $ 600 million recorded in November 2020 exerting a significant impact on the currency and the economy, Central Bank announced. 

The country’s total exports are actually manufactured, but almost half of those are garments. While garments are a good example of value addition, there is still substantial area for growth in this segment, several economic experts said.  

However the country’s import restriction and dollar crisis affected  many of the inputs that are imported from abroad – including both components such as zippers and the fabric itself – when much of it could potentially be manufactured in-country. 

Opportunities also exist in Sri Lanka for more advanced processing of materials and manufactured goods, and some are being encouraged by Sri Lankan officials, they said. 

However, local Sri Lankan commentators have cautioned that market interventions, such as price controls, are no substitute for structural reforms. Whether the solution to be recommended is value addition or some other option, the risk is that the efforts will be both costly and ineffective.

Structural reforms can help make the country more competitive while addressing the issue of the trade deficit without risking the unintended consequences of more interventionist measures. 

While this may take more effort, the results could be greater and more sustainable in the long run.

The cumulative deficit in the trade account during January to November 2021 widened to $7,051 million from $ 5,446 million in the corresponding period of 2020. 

 Earnings from exports in November 2021 grew by 54.6 per cent over November 2020 to reach $ 1,211 million, and surpassed the previous highest value recorded in October 2021 ($1,200 million). 

Meanwhile, import expenditure also increased at a higher rate in November 2021. Reflecting the favourable impact of increased exports, the merchandise trade deficit narrowed to $ 553 million in November 2021 compared to $ 600 million in November 2020.

 Meanwhile, decreases in import expenditure were observed in dairy products (mainly milk powder), vegetables (mainly masoor dhal and big onions), oils and fats (mainly coconut oil) and seafood (mainly dried fish). 

Intermediate goods: Expenditure on the importation of intermediate goods increased by 24.3 per cent (y-o-y) in November 2021, driven mainly by fuel, textiles and textile articles, rubber and articles, and plastics and articles thereof, Central Bank disclosed.  

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