By: Staff Writer

November 01, Colombo (LNW): In September 2024, Sri Lanka’s export sector saw growth, with exports increasing by 4.1% year-on-year, surpassing the $1 billion mark. However, this improvement came alongside a growing trade deficit, which the Central Bank attributed to rising imports.

 Despite these challenges, the Central Bank’s report highlights a stronger financial account, supported by foreign investments in the Colombo Stock Exchange (CSE) and government securities, driving an overall surplus of $2.28 billion in the country’s balance of payments.

The merchandise trade deficit widened to $634 million in September 2024, compared to $377 million in September 2023, as import expenses rose more sharply than export revenues.

 From January to September 2024, the cumulative trade deficit expanded to $4.2 billion, up from $3.34 billion over the same period in 2023.

While industrial exports, particularly textiles, garments, and petroleum products, drove much of the year-on-year growth, agricultural and mineral exports declined, largely due to lower seafood and tea exports.

Imports grew substantially, recording a 22% year-on-year increase to $1.65 billion in September. This rise was broad-based across all major import categories, with significant contributions from intermediate goods, investment goods, and consumer goods.

 While textile and chemical imports rose, fuel imports declined due to both lower prices and volumes of refined petroleum. Notably, investment goods imports also increased, particularly for machinery and equipment like cranes.

In the services sector, inflows, excluding tourism, were estimated at $311 million in September 2024, showing a slight decline from $319 million in September 2023.

Key contributors included sea transport and IT services. Outflows, however, saw a significant jump to $336 million from $162 million a year earlier, primarily due to increased costs in overseas travel and air transport.

Foreign investments in the government securities market saw a net outflow of $5 million in September 2024, contributing to a cumulative net outflow of $256 million from January to September.

Conversely, the CSE attracted a cumulative net inflow of $43 million over the same period, indicating some resilience in investor sentiment toward equity markets.

By the end of September 2024, Sri Lanka’s Gross Official Reserves (GOR) stood at $6 billion, an increase of $1.6 billion from the previous year-end.

This total includes a conditional swap facility with the People’s Bank of China (PBOC), providing import coverage for approximately 3.9 months.

The Central Bank recorded net purchases of $96 million from the domestic foreign exchange market in September 2024, helping to support the reserves.

The Sri Lankan rupee appreciated steadily, strengthening by 10.3% against the U.S. dollar by October 2024. It also appreciated against other major currencies, such as the euro, pound sterling, and Indian rupee, driven by positive cross-currency movements and higher foreign inflows.

 Reflecting this, the real effective exchange rate (REER) index increased from 70.2 at the end of December 2023 to 72.6 by September 2024, although this uptick indicates a slight reduction in external competitiveness.

In summary, while export earnings and foreign investments helped bolster Sri Lanka’s external accounts, the widening trade deficit and rising import demand indicate ongoing structural challenges in the trade sector.

Nonetheless, the strengthening of foreign reserves and the appreciation of the rupee are positive signals for the country’s economic stability as it navigates a complex external environment.