the country heading for a massive trade deficit last
year, the latest statistics of the country’s
external trade performance has some encouraging
There appears to be a revival of the country’s
industrial trade exports; increase in some new
industrial export items; a good performance in tea
and rubber exports owing to buoyant international
commodity markets; and a significant increase in
The latter has helped immensely in reducing the
merchandise trade deficit to less than US$1,000
Import expenditure has however risen sharply owing
to increased imports as well as high prices of food,
petroleum and fertilizer.
The recent lowering of tariffs on several items
has also as expected resulted in increased imports
of vehicles, electronic items and other consumer
Intermediate imports have risen sharply, especially
owing to the increase in oil prices.
This pattern is likely to be repeated in 2011,
though the unfavourable factors are likely to be
accentuated and the trade balance perhaps even
higher than in 2010.
Merchandise trade deficit
The merchandise trade deficit for last year is
likely to exceed US$5,000 million and be close to
US$5, 5000 million at the end of the year.
In the first 11 months of the year, the trade
deficit expanded to US$ 4,744 million compared to
US$2,753 million in the same eleven month period of
This 72 percent increase has resulted in a huge
trade deficit that would have caused a serious
balance of payments strain.
However, the significant increase in worker
remittances during the same period has offset to a
large degree the massive trade deficit.
During the first eleven months of 2010, workers’
remittances increased by 24 per cent over that of
the corresponding period of 2009 to US$3,761.9
Consequently the merchandise trade deficit when
offset by worker remittances amounted to less than
US$ 1,000 million.
The larger tourist earnings last year and capital
inflows are likely to bring about a surplus in the
balance of payments.
The gross official reserves were at a very
comfortable level of US$6.6 billion by the end of
Owing to the high worker remittances, enhanced
tourist earnings and other capital inflows, the
large trade deficit will not have an adverse effect
on these reserves as the final outturn in the
balance of payments is likely to be a surplus.
The current amount of reserves is estimated to be
adequate as they are according to the Central Bank
equivalent to 6.6 months of imports.
Exports in 2010
Export earnings,during the first 11 months of 2010,
increased by 15.4 per cent to US$7,339 million.
However, this increase was inadequate as imports
increased by a larger amount to cause the large
What is however very significant is the high growth
in exports in November that was one of the highest
growth rates in exports in the recent past.
In November, export earnings increased significantly
by 36 per cent or US$834 million.
This was the highest monthly increase since October
The salient issue is whether this is setting a trend
for 2011 and whether it would result in a more
diversified export profile.
This is to be seen in the export performance in
the first half of this year.
It was very significant that there were substantial
increases in some newer categories of exports, such
as boats, bicycles, electrical equipment, rubber
products, petroleum products, food, beverages and
There have been signs of an increase in such exports
for some time.
Such diversification in the industrial export
profile is propitious for the country’s export
structure and the trade balance that is continuously
in deficit as it has been dependent mostly on
Such diversification of the export structure could
give greater stability to export incomes and reduce
the external trade vulnerability of the country.
The largest contribution to growth in export
earnings in November came from industrial exports,
followed by the agricultural exports.
This was a reversal of the trend in the previous 10
months when industrial exports fared badly, while
agricultural exports fared well.
Industrial exports, which accounted 76 per cent
of total export earnings, were led by textile and
Contrary to earlier expectations earnings from
garment exports to Sri Lanka’s major markets, the EU
and the US, increased by 39.2 per cent and 28.7 per
cent, respectively, in November 2010.
Earnings from machinery and equipment exports
increased significantly to US$67 million in November
This comprised mainly of transport equipment, such
as boats and bicycles, and electrical equipment,
such as transformers, static converters, inductors,
circuits and insulated cables.
Earnings from rubber products, petroleum products
and food, beverages and tobacco categories also
contributed towards the growth in industrial export
earnings in November 2010.
Earnings from agricultural exports grew owing to
increases in both export volumes and improved
prices. Particularly significant were the increase
in prices of tea and rubber.
The average export prices of tea reached US$4.55 per
kg while rubber prices reached US$4.14 per kg in
November 2010. These prices continued to increase in
December and January this year.
The main reason for the trade deficit increasing to
the mammoth US$ 4,744 million during the first 11
months of 2010 compared to US$2,753 million in the
same period of 2009 was the higher imports of
The expenditure on intermediate imports increased by
33 percent to US$6,696 million in the first 11
The largest increase in import expenditure was for
petroleum imports that increased by as much as 46
percent to reach a massive US$2,695 million in the
first 11 months of last year.
The rise in petroleum prices this year is likely to
result in a further increase in oil import
The huge merchandise trade deficit of last year will
be brought down to a modest level owing to the
increase in worker remittances.
The increased tourist earnings and other capital
inflows will enable the country to record a balance
of payments surplus for the year thereby not
straining the reserve position that is in any case
A significant development last year was the enhanced
exports of newer industrial products.
This development augurs well for the country’s
future trade stability.
The merchandise trade deficit is likely to be even
more this year, but once again worker remittances,
tourist earnings and capital inflows are likely to
offset the trade deficit.