Trade deficit widened to US$ 840 m in April | Sunday Observer

Trade deficit widened to US$ 840 m in April

The external sector performance in April 2020 was severely affected by the pandemic related economic interruptions.

The imposition of a partial lockdown had a significant impact on merchandise exports sector while shutting down the tourism industry.

The expenditure on merchandise imports also declined, with disruption to import related supply chains and restrictions imposed on non essential imports by the government and the Central Bank.

With some migrant workers returning to the country prior to the lockdown and reduced compensation and redundancies faced by some migrant workers abroad, a significant decline was recorded in workers’ remittances during the month. In the financial account, a net foreign investment outflow was recorded in the government securities market, while the Colombo Stock Exchange (CSE) remained closed throughout April 2020. With increased uncertainties and lack of inflows to the domestic foreign exchange market, the Sri Lanka rupee depreciated significantly against the US dollar during the first half of April 2020.

However, the rupee began to stabilise gradually since the second half of the month with improving market sentiments. Subsequent appreciation of the exchange rate helped in limiting the depreciation to less than 3 per cent so far during the year. The deficit in the trade account widened in April 2020 to US dollars 840 million, from US dollars 797 million in April 2019, as the decline in exports exceeded the decline in imports. On a cumulative basis, the trade deficit widened to US dollars 2,693 million during the first four months of 2020 from US dollars 2,458 million in the corresponding period last year.

Meanwhile, terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated by 16.4 percent (year-on-year) in April 2020 as export prices declined at a faster pace than the decline in import prices

In comparison to April 2019, earnings from merchandise exports declined significantly by 64.6 percent to US dollars 282 million in April 2020, continuing the year-on-year decline observed in March 2020, with all major export sectors recording significant declines.

Disruptions to domestic production processes, disruptions to export related services due to the imposition of curfew and disturbances to both domestic and global supply and demand chains due to the outbreak of the pandemic were the main reasons for the sharp decline in export earnings.

Earnings from the three major exports sectors; agricultural, industrial and mineral exports, recorded significant contractions in April 2020. The export volume index and the unit value index declined by 50.6 per cent and 28.4 per cent in April 2020, indicating that the decline in exports was driven by lower volumes and lower prices, compared to April 2019.