Trade deficit widens YoY in February 

• Export earnings remain above $ 1 billion
• CBSL says worker remittances continued to be ‘moderate’
• Tourism records ‘notable’ recovery in February

The trade deficit for February 2022 widened on a year-on-year (YoY) basis, according to the Central Bank of Sri Lanka (CBSL), which pointed out that despite February being the ninth consecutive month of export earnings exceeding the $ 1 billion margin, import expenditure – which recorded a decline compared to the previous month – had also increased substantially on a YoY basis.

It noted that the deficit in the trade account widened to $ 781 million in February 2022, compared to a deficit of $ 572 million recorded in February 2021. However, on a month-on-month basis, the trade deficit declined in February 2022, compared to $ 859 million recorded in January 2022. Meanwhile, the cumulative deficit in the trade account during January to February 2022 widened to $ 1,640 million, from $ 1,227 million recorded over the same period in 2021.

Tourist arrivals showed a “notable recovery” in February 2022 over the same month in the previous year, while workers’ remittances continued to be moderate in February 2022, the CBSL stated. Foreign investment in the Colombo Stock Exchange (CSE) recorded a net inflow during the month. The weighted average spot exchange rate on the interbank market hovered around Rs. 202 per US dollar during February 2022. 

However, the Central Bank allowed a measured adjustment in the exchange rate in the first week of March 2022, in view of the heightened pressures on the exchange rate amidst  subdued liquidity in the domestic foreign exchange market, resulting in an overshoot subsequently by market forces beyond the expected level of depreciation in the measured adjustment.

Earnings from merchandise exports in February 2022, recorded at $ 1,092 million, grew by 14.7% over February 2021. An increase in earnings was observed in industrial exports and mineral exports, while a decrease was observed in agricultural exports. The cumulative export earnings, which increased by 16.1% during January-February 2022 over the same period of the last year, amounted to $ 2,192 million.

At the same time, expenditure on merchandise imports increased by 22.9% to $ 1,873 million in February 2022, compared to $ 1,524 million recorded in February 2021, while recording a decline compared to December 2021 and January 2022. An increase in expenditure was observed across all main categories, with intermediate goods imports contributing mainly to the expansion. On a cumulative basis, total import expenditure amounted to $ 3,832 million during the period from January-February 2022, recording an increase of 23%, compared to $ 3,115 million recorded in the corresponding period in 2021.