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Trade Deficit widens in February, reflecting economic normalisation

April 01, Colombo (LNW): In February, the deficit in Sri Lanka’s trade account of the Balance of Payments (BoP) expanded compared to the previous year, primarily due to increased imports as the economy resumed normal activities.

However, the deficit contracted significantly from the previous month, largely attributable to reduced spending on fuel imports due to lower demand.

Imports totaled US$ 1,378 million, while exports amounted to US$ 1,059 million, resulting in a trade deficit of US$ 319 million for February.

This figure represents a notable increase from the US$ 39 million deficit recorded a year earlier when the economy faced foreign exchange constraints.

Nevertheless, the month-on-month deficit of US$ 319 million was substantially lower than the US$ 541 million deficit recorded in January.

This improvement can be attributed to strengthened exports and reduced imports, as mentioned earlier.

Year-on-year data indicates a 35.0 per cent increase in merchandise imports and a 7.9 per cent increase in exports.

These figures reflect the gradual normalisation of economic conditions, supported by relaxed import restrictions and accommodative monetary policies.

Export growth was observed across all major sectors, including industrial, agricultural, and mineral categories.

Notably, petroleum product exports, particularly bunkering and aviation fuel, drove industrial exports, while robust tea earnings contributed to agricultural exports.

Garments and textiles exports showed signs of recovery in February compared to January, indicating positive developments for the industry.

Imports were driven by consumer, intermediate, and investment goods categories. Consumer goods imports increased, reflecting rising expenditures on both food and non-food items.

However, fuel imports notably declined in February compared to January levels.

Investment goods imports, particularly machinery and equipment such as cranes and building materials, surged, indicating a revival in construction sector activity.

Cumulatively, Sri Lanka’s imports totaled US$ 2,890 million, and exports amounted to US$ 2,030 million in the first two months of the year, resulting in a trade deficit of US$ 860 million.

This represents a significant increase from the US$ 484 million deficit recorded in the corresponding period of 2023.

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