By: Staff Writer
August 04, Colombo (LNW): Sri Lanka’s merchandise trade deficit continued to shrink monthly in June 2024, as export earnings increased more rapidly than import expenses. The country exported goods worth US $1,077 million and imported goods valued at $1,447 million, resulting in a trade deficit of $370 million.
Exports grew by 6.5% and imports by 3.0% from the previous month, leading to a 5.9% reduction in the trade deficit. In May, the deficit was $393 million, down significantly from $558 million in April. Compared to a year ago, June’s exports rose by 7.2% and imports by 5.7%, causing a 1.7% increase in the deficit.
Cumulatively, the trade deficit for the first six months of the year reached $2,540 million, an 11% increase from the same period last year. This high deficit is typical for Sri Lanka, which heavily relies on imported goods, especially for energy and manufacturing inputs for both domestic consumption and exports.
The increasing import bill and trade deficit signal that Sri Lanka’s economy is stabilizing after severe inflation, foreign exchange shortages, and high taxes and interest rates, which led to a deep recession in 2022 and 2023. During this period, production and consumption were drastically reduced.
A higher trade deficit isn’t a short-term concern if the country can generate enough inflows through service exports and other current and capital account inflows. Investments and borrowings collected into the capital account should be used to develop export-oriented industries, which can reduce the trade deficit in the medium to long term.
However, successive governments have struggled to achieve this, and the current International Monetary Fund program has made it even more challenging due to significantly higher taxes on all industries.
In June, the main contributors to export growth were petroleum products, food and beverages, tobacco, rubber products, and tea. Industrial product exports were driven by increased volumes of bunkering and aviation fuel, while agricultural exports were boosted by spices, particularly higher volumes of pepper and tea.
The import bill for June was primarily driven by machinery and equipment, textiles and textile articles, chemical products, and building materials. Consumer goods imports declined due to lower imports of wheat flour, edible oils, and medical and pharmaceutical products, indicating that consumption levels have not yet returned to pre-crisis levels. This trend was also reported by some consumer companies during the week.
Sri Lanka imported $365.4 million worth of fuel in June, a 26% increase from a year ago, although the cumulative six-month fuel bill was down by 6.2% at $2,209.2 million. Fuel remains the country’s largest import commodity as Sri Lanka does not produce oil.
The overall economic picture suggests a gradual return to normalcy, with cautious optimism for managing the trade deficit through strategic investments and increased export capacity.
