Trade deficit narrows on rice, vehicle import drop

Sri Lanka’s external sector has recorded a modest performance in April 2016, the Central Bank said yesterday.

The trade deficit narrowed on account of the higher decline in import expenditure mainly due to the drop in the importation of vehicles and rice compared to the decline in earnings from exports during April 2016,the Bank said.

Although workers’ remittances were marginally lower in April, earnings from tourism increased strengthening the current account of the Balance of Payments (BOP) while inflows to the financial account continued to moderate.

Earnings from exports in April 2016 stood at US$ 707 million,indicating a marginal decline of 0.9 per cent, year-on-year, attributable to lower agricultural exports, despite higher earnings from industrial exports.

Earnings from industrial exports, which account for 77 per cent of total exports, increased by 3.1 per cent compared to April 2015, mainly due to the improved performance of textiles and garments exports.

Earnings from textiles and garments exports increased by 3.1 per cent, year-on-year, to US dollars 340 million during the month, reflecting increases in garment exports to EU and USA markets by 3.7 per cent and 3.1 per cent,respectively.

Further, export earnings from food, beverages and tobacco,base metals and articles, and leather, travel goods and footwear,categorised under industrial products, also increased significantly in April 2016.

However, a 12.4 per cent year-on-year reduction recorded in agricultural exports, led by tea and spices, weighed down on the overall export performance in April 2016.

The decline in tea exports is attributed to the lower export volumes and prices compared to April 2015 amidst subdued global demand and higher supply of black tea from other countries.

Continuing the declining trend observed from the latter part of 2015, export earnings from spices decreased significantly by 30.0 per cent in April 2016, year-on-year, reflecting poor performance of cloves and pepper exports. Further, export earnings from minor agricultural products and seafood also declined by 32.8 per cent and 18.6 per cent, respectively,during the month.

Exports earnings during the first four months of 2016 contracted by 4.5 per cent, year-on-year, to US dollars 3,435 million largely due to a reduction in export earnings from transport equipment and petroleum products.

The leading markets for merchandise exports of Sri Lanka during the first fourmonths of 2016 were the USA, UK, India, Germany and Italy accounting for about 54 per cent of the total exports.

The expenditure on imports decreased by 2.0 per cent to US dollars 1,461 million, in April 2016 compared to the same month in 2015, due to the decline recorded in expenditure on consumer goods, particularly vehicles and rice imports.

Reflecting the impact of the policy measures adopted by the government to curtail vehicle imports, expenditure on personal motor vehicle imports decreased by 28.8 per cent, year-on-year, in April 2016.

Expenditure on rice imports declined for the twelfth consecutive month to US dollars 1.2 million in April 2016 reflecting a 94.7 per cent decrease,year-on-year, due to the availability of rice in the local market from the bumper paddy harvest in 2015 And the impact of the increases in the import duty by the government on the import of rice.

Further, the lower expenses incurred on transport equipment, base metals, fertilizer, vegetables and fuel imports contributed largely to the decline the import expenditure during the month.

However, import expenditure on wheat and maize increased considerably in April 2016 due to importation of wheat by Prima Ceylon (Pvt.) Ltd, the main wheat importer in Sri Lanka, After a laps of three months.

Meanwhile, Import expenditure on machinery and equipment and building materials increased by 12.2 per cent and 22.3 per cent, respectively on a year-on-year basis in April 2016.

Further, import expenditure on textile and textile articles, and diamonds and precious stones and metals increased during the month. On a cumulative basis, expenditure on imports during the period from January to April 2016 decreased by 3.6 per cent to US dollars 6,055 million, mainly due to the declines recorded in the importation of fuel, transport equipment and rice.

During the first four months of 2016,China, India, Japan, Singapore and UAE accounted for about 57 per cent of the total imports.

The trade deficit of US dollars 754 million in April 2016 reflected a Contraction by 2.9 per cent, on a year –on -year basis from the deficit of US dollars 777 million in April 2015 due to the steeper reduction in imports in comparison to the decline in exports.

Further, on a cumulative basis, the trade deficit during the first four months of 2016 contracted by 2.4 per cent to US dollars 2,621 million from US dollars 2,685 million recorded during the same period of 2015.

Tourist arrivals increased to 125,044 during May 2016 recording a growth of 10.1 per cent over May 2015.

Accordingly , tourist arrivals During the first five months of 2016 increased by 18.4 per cent to 846,229 over thecorresponding period of 2015.

The top five sources of tourist arrivals up to May 2016 were India, China,UK, Germany and France, accounting for 52.2 per cent of the total tourist arrivals during the period.

Earnings from tourism increased to US dollars 1,402.5 million during the first five months of 2016 in comparison to US dollars 1,184.4 million recorded during the same period of 2015.

*Workers’ Remittances*

Receipts from workers’ remittances declined by 1.4 per cent to US dollars

578.0million in April 2016 in comparison To US dollars 585.9 million in April 2015.

Meanwhile, inflows from workers’ remittances at US dollars 2,371.4 million during the first four months of 2016 recorded an increase Of 4.7 per cent over the corresponding period of 2015. FDI inflow ,inclusive of foreign loans to BOI companies ,amounted to US dollars 164.5 million during the first quarter of 2016 in comparison to US dollars 346.4 million recorded in the corresponding period of 2015.

Meanwhile, the Colombo Stock Exchange (CSE) recorded a net outflow of US dollars 19.5 million up to end April 2016 , which consisted of net outflows of US dollars 20.8 million from the secondary market and inflows of US dollars 1.3 million to the primary market.

The government securities market recorded a net outflow of US dollars 565.2 million during the first four months of 2016 compared to a net inflow of US dollars 25.7 million during the corresponding period of 2015.

Long term loans to the Government recorded a net outflow of US dollars 67.5 million during the first four months of 2016, compared to a net inflow of US dollars 57.0 million during the corresponding period of 2015.

Overall Balance of Payments

(BOP) Position During the first four months of 2016, the overall BOP is estimated to have recorded a deficit of US dollars 958.0 million in comparison to a deficit of US dollars 1,025.2 million recorded during the corresponding period of 2015.

International Reserves and Exchange Rate Movements Sri Lanka’s gross official reserves as at end April 2016 amounted to US dollars 6.1billion,equivalent to 3.9 months of imports, while total foreign assets amounted to US dollars 8.3 billion, equivalent to 5.3 months of imports.

The rupee recorded a modest depreciation of 1.2 per cent against the US dollar during the period from end 2015 to 29 July 2016.

Furthermore, reflecting the cross currency movements, the rupee also depreciated against the euro by 2.6 per cent, the Japanese yen by 14.6 per cent, the Canadian dollar by 6.3 percent, the Australian dollar by 4.3 per cent and the Indian rupee by 0.2 per cent during this period while appreciating against the pound sterling by 11.1 per cent.

http://www.dailynews.lk/

China Tells Sri Lanka: We Want Our Money, Not Your Empty Airport

Sri Lanka has a debt problem. After more than a decade of taking out huge loans to build large-scale infrastructure — most of which hasn’t yet produced adequate returns — the country is now struggling to make payments, and is looking for another way out.

A potential exit strategy was to offer China debt for equity swaps, which Sri Lanka’s Prime Minister Ranil Wickremesinghe recently proposed to China’s Ambassador Yi Xianliang. China was offered varying degrees of control over some of Sri Lanka’s biggest infrastructure projects, including Mattala International Airport and portions of the Hambantota deep sea port, and Sri Lanka would receive some debt relief.

China’s response to this offer was publicized earlier today in Colombo’s Sunday Times: We’re not interested. The Chinese ambassador replied that “it was not possible according to China’s laws.”

However, China was clear that it extends its “fullest cooperation” and that such deals should be conducted via investors on proper commercial terms.

This point is key: while China’s government will not swap debt for equity they will help clear the road for Chinese companies to take over key projects in Sri Lanka. IZP, a Chinese informational technology company, has been put forward as a potential purchaser of Mattala International Airport, while COSCO is looking into expanding operations at the Hambantota deep sea port.

IMG_20160218_111424_DCE
Not a passenger in sight. It is still the morning and no more flights are to arrive or depart. Mattala International Airport may just be the world’s emptiest. Image: Wade Shepard.

The problem, both for Sri Lanka and for any would-be investor, is that many of the large projects in question are losing money fast, and may ultimately prove to be economically unsustainable — at least without a massive amount of additional investment, more infrastructure, and a miracle or two. With just two flights per day, Mattala International is more than likely the most underused international airport on the planet and the Hambantota port is also running at severe under-capacity, while the brand new and fully modern highways that run through this region are mostly devoid of vehicles.

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However, not all hope is lost for these projects — yet. Although China declined a debt for equity swap, their participation in Sri Lanka’s infrastructure development is more than likely just getting started. Colombo Port City has been green-lighted once again and just last week China requested 15,000 acres of land in Hambantota for the building of a massive, million worker special economic zone. The latter seems to run flush with the original Hambantota idea:

“If you’re going to have a bulk port you need to have industry around the bulk port to take advantage of it,” said Deshal de Mel, a senior economist at Hayleys Plc in Colombo. “That is where the whole idea comes from; that we’ll have industry coming in to kind of match up to the port. So the shipping port can still be made to work if they can get the right industries to invest in it.”

Sri Lanka’s debt situation is severe. The country is currently in $58.3 billion deep to foreign financiers, and 95.4% of all government revenue is currently going towards paying back its loans. This means that out of every hundred dollars the government brings in only $4.60 is going towards essentials like education and public services.

Beyond China, Sri Lanka has called for proposals from investors worldwide who may interested in taking on their Hambantota projects, just in case you’re looking for a challenge.

http://www.forbes.com/sites/wadeshepard/2016/07/31/china-to-sri-lanka-we-want-our-money-not-your-empty-airport/#4700e5871169