roadBlockAd
brand logo

First trade surplus in 20 years to be short-lived?

02 Aug 2022

  • Business community cautions against excessive celebration 
  • Economist says exports will be hit hard by import issues
By Imesh Ranasinghe  Sri Lanka recorded its first trade surplus after 20 years in June 2022, with a surplus of $ 21 million, but this victory may be short-lived, as exporters are expected to be “hit hard” by import problems in the coming months, warned key figures in the local business community. Speaking to The Morning Business, Advocata Institute Economic Researcher Rehana Thowfeek said that as the exports shipped out by Sri Lankan exporters were probably produced a few months ago, we are yet to see the impact they will face due to issues the country is dealing with in importing materials. She added that once exporters are hit with import problems – since 75% of Sri Lanka’s imports go into production for export – it will impact export revenue, as the country is unable to import at total capacity. “They might have a surplus in the next month as well, but it will decline over time,” she said. According to the Central Bank of Sri Lanka (CBSL), the balance in the merchandise trade account in June 2022 recorded a surplus of $ 21 million, compared to the deficit of $ 652 million recorded in June 2021, and for the first time since August 2002, when a trade surplus of $ 110 million was recorded. Meanwhile, the CBSL said that the cumulative deficit in the trading account during January-June 2022 narrowed to $ 3,514 million, from $ 4,316 million recorded over the same period in 2021.  However, the ratio of the price of exports to the price of imports deteriorated by 5.4% in June 2022, compared to June 2021, as the increase in import prices surpassed the increase in export prices. Sri Lanka Shipper’s Council Chairman Russell Juriansz said that the trade surplus was recorded mainly due to the import restrictions in place and the challenges businesses face in finding dollars to import goods. He said the trade surplus would be a good indicator if it could be sustained for a while, adding that there has been a gradual increase in exports in the last few months, especially in the apparel and tea sectors. In June, apparel exports reached an all-time high of $ 537 million for the month, as well as $ 2.8 billion in the first half of 2022, while rupee earnings from tea exports, from January to June this year, increased by 28% to Rs. 164.2 billion compared to the same period last year. The total tea export revenue in dollars was $ 577 million. Thowfeek said that the export performance in Sri Lanka has gradually developed over the past few months because of the rupee depreciation, enabling our exporters to be a little more competitive in the global market. National Chamber of Exporters of Sri Lanka (NCE) Secretary General/CEO Shiham Marikar similarly said that while the trade surplus is good news for the country, it could be temporary. He said that the relevant authorities should prioritise imports and maintain strict control and discipline in dollar outflows to maintain this trade surplus in the coming months. However, Thowfeek said to maintain a trade surplus in the long term, the country’s economy has to be export-oriented, removing the trade protectionism measures it has imposed to protect domestic industries. “We implement trade policies to protect what we call domestic industries, but what that ends up doing is really restricting the export capacity of the country, because it ends up misallocating resources toward those protected industries,” she added. She also noted that import substitution is not a sustainable method of achieving an export-oriented economy, because 75% of our imports go towards production, while key inputs like fuel cannot be substituted. “The country needs to stop thinking about import substitution and really start thinking about how to grow our exports,” Thowfeek said.


More News..