Sri Lanka’s trade deficit contracted in May 2022 as import expenditure declined, year-on-year, for the fifth consecutive month, while earnings from exports increased, the Central Bank reported Monday in its External Sector Performance review for the month. Merchandise trade deficit declined to US$ 404 million in May 2022, compared to US$ 716 million in May 2021. On a cumulative basis, trade deficit narrowed on a year-on-year basis for the first time in May during this year. Accordingly, the trade deficit during January-May 2022 narrowed to US$ 3.535 billion, from US$ 3.663 million recorded over the same period in 2021. The major contributory factors for this decline in the cumulative trade deficit is the increase in exports of Textiles and garments and petroleum products. Earnings from merchandise exports in May 2022 grew by 17.5 percent over May 2021 recording US$ 1.047 billion. An increase in earnings was observed in industrial exports, while a decline was recorded in agricultural exports mineral exports. The cumulative export earnings during January-May 2022 increased by 12.2 percent over the same period in the last year, amounting to US$ 5.266 billion. Earnings from the export of industrial goods increased by 24.2 percent in May 2022 to US$ 853.2 million, compared to US$ 687.0 million in May 2021.
Total earnings from the export of agricultural goods in May 2022 declined by 4.2 percent to US$ 190.9 million, compared to May 2021, mainly attributed to decline in tea exports. Overall imports: Expenditure on merchandise imports declined to the lowest level since November 2020, recording a decline of 9.7 percent in May 2022 to US$ 1.451 billion, compared to US$ 1.607 billion and US$ 1.699 billion recorded in May 2021 and April 2022, respectively. A decline in expenditure was observed across all main categories, with the imports of investment goods and non-food consumer goods contributing the most to this decline Earnings from tourism are provisionally estimated at US$ 54 million for the month of May 2022, in comparison to US$ 113 million in the previous month. Workers’ remittances decreased by 33.9 percent in May 2022, year-on-year, to US$ 304 million from US$ 460 million compared to May 2021. A marginal net inflow of foreign investment was recorded in the government securities market in May 2022. The net inflows from the government securities market in May 2022 amounted to US$ 4 million.
Meanwhile, the Colombo Stock Exchange (CSE) recorded a net inflow of US$ 92 million during the five months ending May 2022. Gross official reserves stood at U$ 1.9 billion at end May 2022. This included the swap facility from the People’s Bank of China equivalent to around US dollars 1.5 billion, which is subject to conditionalities on the usability. Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to US$ 5.6 billion at end May 2022. A stabilization of the exchange rate was observed following the introduction of new exchange rate arrangement on 13 May 2022 that aimed at curtailing the excessive exchange rate volatility driven by speculation. Accordingly, during the year up to 11 July 2022, the rupee recorded a depreciation of 44.5 percent against the US dollar.