Export and Import Performance in Sri Lanka(2017 to 2021).
1. 1 Export Performance.
Sri Lanka’s total exports consist of four major categories: agricultural exports, industrial exports, mineral exports, and unclassified exports. The total exports tended to keep rising from 2017 to 2019. It should be acknowledged that the strong growth in export earnings in 2017 was supported by the restoration of the EU-GSP+ facility, the recovery of external demand, the expansion of investment in export-related industries, the rise in commodity prices on the international market, favorable external trade policies along with strong institutional support, and the Central Bank’s flexible exchange rate policy.
In 2020, however, the value has decreased somewhat from 2019 to $10,047 million. This is due to the fact that revenues from merchandise exports were severely hit during the months when COVID-19 pandemic containment efforts were at their peak but returned to pre-pandemic levels quicker than anticipated. The implementation of lockdowns and other public health restrictions in Sri Lanka to control the spread of COVID-19 had a detrimental impact on exportable goods production in 2020.
1.1 Composition of Exports.
Over the past five years (2017–2021), industrial exports have made up the majority of total exports to Sri Lanka. In 2017, industrial exports accounted for 75.2% of overall exports; by 2021, this proportion has increased to 77.6%. In contrast, 78.9% of total exports from industrial exports were generated in 2019 for a total value of $9,426.3 million. Agricultural exports provide the second-highest contribution to total exports. In the past five years, the proportion has fluctuated between 20% and 24%. In terms of monetary value, the range is between $2,767.2 million and $2,729.5 million. The highest agricultural exports were achieved in 2017 with a total of $2,767.2 million between 2017 and 2021. Later, however, the proportion of agricultural exports to total exports continuously dropped until 2020. Meanwhile, in 2021, agricultural exports are projected to rise to $2,729.5 million, a 16.8% increase from 2020. This was mostly due to increased sales of spices, tea, seafood, and coconuts. Mineral exports are the third largest contributor to total exports. Throughout the past five years, it has fluctuated between 0.2% and 0.4% as a percentage. The export of minerals also significantly reduced between 2017 and 2020. In contrast, it grew to $44.5 million last year. Titanium ores classified as ores, slag, and ash were principally responsible for this growth.
1.11 Agricultural Exports.
Under agricultural exports, tea, coconut, and spices contribute the most to Sri Lanka’s export earnings. Tea contributes the most to the industry. It has traditionally been valued between $1,200 million and $1,600 million. In the past five years leading up to 2020, the contribution of the tea industry has steadily declined. In 2018, agricultural exports, which accounted for around 22% of overall exports, decreased by 6.8% year on year to US$ 2,579 million owing to poor performance in substantially all subcategories, except seafood. Even though the amount of tea exported grew in 2019, export revenue decreased due to poor export price levels in the market.
Examining snapshots of agricultural exports reveals that, despite an increase in export earnings from non-kernel coconut products, coconut export earnings decreased by 10.6 % to $311 million owing to a sharp reduction in export earnings from coconut kernel products. In 2018, income levels from coconut kernel products declined by 21.3 %, mostly due to lower exported quantities of desiccated coconut and coconut oil as a result of reduced coconut output in the first half of the year due to the lagging impact of bad weather conditions.
In 2019, revenues from spice exports decreased by 13.2% to $313 million, mostly owing to reduced export volumes of cinnamon and pepper, despite a rise in earnings from cloves, nutmeg, and mace as local supplies increased.
1.1.2 Industrial Exports.
Until 2019, most of the industrial export revenue came from Textiles and Garments, Rubber Products, and Petroleum Products. From 2020 to 2021, however, the sector contributing the third most to industrial exports became Food, Beverages, and Tobacco, making Petroleum Products the fourth largest contributor to industrial exports. The export of petroleum products decreased because of a downturn in the bunker and aviation fuel supply and price. Interruption of global marine and aviation activity also contributed to this reduction. The sector of food, beverages, and tobacco had a gain in revenue mostly owing to the export of value-added coconut products. In 2020, earnings from the export of textiles and garments, Sri Lanka’s biggest export, decreased by 21%. Exports of rubber products, led by solid tyres and household rubber gloves, contributed to the rubber product sector’s improved performance in 2021 by generating the highest export revenue in the sector’s five-year history: US$ 1,050.4 million, making it Sri Lanka’s third-largest export sector after garments and tea.
1.2 Import Performance.
Imports have changed periodically throughout the previous five years (2017 to 2021). Even though overall imports rose from 2017 to 2018, they have steadily decreased to $19,937 million in 2019. Primarily as a result of the policy measures adopted by the government and the Central Bank to reduce non-essential imports towards the end of 2018, expenditures on imports of goods decreased significantly in 2019. Imports increased again in 2021, reaching $20,637 million. Despite extremely low imports of personal motorcycles, the increase in imports was primarily attributable to the increased demand for inputs as a result of the resumption of domestic economic activities, elevated prices on global commodity markets, including fuel prices, increased reliance on refined petroleum due to intermittent refinery closures, higher expenditure on account of medical and pharmaceutical items such as vaccines, and the relaxation of some import restrictions.
1.2.1 Composition of Imports
Most of Sri Lanka’s imports consist of consumer goods, intermediate goods, and investment goods. Intermediate goods have the largest import cost to the economy of all imports. It was $11,435.8 million in 2017 and $12,308.9 million in 2021. However, between 2017 and 2021, imports of intermediate products exhibited both rising and falling tendencies. The expenditures on imports of both consumption goods and investment goods approximately fluctuated between $3,000 and $5,000 million from 2017 to 2021. In 2020, expenditures on investment goods decreased by 22.6% to $3,563 million, recording the lowest import expenditure in the sector in the last five years. Comparing 2020 to 2019, import expenditures for the three major categories of investment goods (machinery and equipment, construction materials, and transportation equipment) all decreased. This resulted from import restrictions and other consequences of the epidemic on the global and local economies. In comparison, the lowest import expenditure for consumer goods is also reported in 2020, totaling $3,401.7 million.
22.214.171.124 Consumer Goods.
Typically, consumer goods are classified into two categories: Food and Beverages and Non-Food Consumer Goods. In the last five years, import expenditures on non-food consumer goods accounted for the majority of consumer goods imports. The spending on non-food consumer items has substantially fallen to $1,847.3 million in 2020. Consequently, the reduction in non-food consumer goods was 27% in 2020 compared to the previous year, with motor vehicles for personal use having the greatest impact on the decline.
In 2017, the cost of importing consumer goods grew by 4.3% to $4,503 million due to higher imports of food and beverages. This is the highest food and beverage import expenditure reported between 2017 and 2021. On one hand, expenditures on rice imports increased significantly to US$ 301 million in 2017, mostly due to the reported decline in average import prices. Furthermore, substantial rise in rice imports represented the effect of the decrease of the Special Commodity Levy (SCL) imposed on rice imports to fill the local market deficit, which was worsened by severe weather conditions that occurred for two consecutive cultivation cycles. On the other hand, import expenses for milk powder grew significantly by 27.6 % to $294 million as a consequence of increasing milk powder costs on the global market.
126.96.36.199 Intermediate Goods
Fuel, Textiles and Textile Articles, and Chemical Products are primarily responsible for the rise in intermediate goods import expenditures. Fuel is the most expensive of the three goods to import into Sri Lanka. In 2018, $4,151.9 million was spent on bringing fuel into the nation to meet domestic demand. This rise in spending is mostly attributable to a substantial increase in the average import costs of both refined petroleum products and crude oil, as well as a slight increase in the quantities of both goods imported throughout the year. In 2020, the cost of fuel imports dropped rapidly to $ 2,542.6 million. It is mostly due to the price reduction. During the period under review, volumes decreased by 9.3% and 15.0%, respectively.
Textiles and textile articles, the second-largest import item, was largely imported to Sri Lanka during the last year. Its cost has reached $3,066.9 million for the first time. In the preceding four years, the import cost of textiles and textile products remained below US$ 3 billion. This was driven by a growth in expenditures on textiles and yarn, which were used to fulfill the increased demand for Sri Lankan garments from important export markets such as the European Union, the United Kingdom, and the United States.
Imports of chemical products (mostly carbon) reached $1 billion for the first time in 2021, while other import categories including basic metals (primarily iron and steel), plastics and articles in primary form, and natural and synthetic rubber saw strong growth rates. However, the restriction on importing chemical fertilizer that remained for the most of 2021 resulted in decreased spending on fertilizer (primarily urea), while spending on unprocessed tobacco and mineral goods such as cement clinkers was lower in 2021 than in 2020.
188.8.131.52 Investment Goods
The majority of investment expenditures are for building materials and machinery and equipment. Sri Lanka imports the most machinery and equipment of the two main subcategories. During the last five years, it has never exceeded $3 billion. In the period from 2017 to 2021, the amount of money spent on machinery and equipment peaked in 2021 at $2,809.5 million. Office machines (mostly computers), telecommunication devices (primarily transmission apparatus), and medical and laboratory equipment were the largest contributors to this growth. In 2020, at $ 1,035.6 million, the import costs of building materials reached their lowest level. This arose from import restrictions and other consequences of the epidemic on the global and local economies.
1.3 Trade Deficit.
In 2020, the trade deficit narrowed significantly to US$ 6,008 million from US$ 7,997 million in 2019. In the time under review, this is the lowest recorded trade deficit, and since 2010, it is the smallest trade deficit Sri Lanka has seen. This improvement in the trade account was a result of export earnings reaching pre-pandemic levels sooner than anticipated after the COVID-19 pandemic-related setbacks and import expenditure falling in response to policy measures implemented to reduce non-essential imports, as well as relatively low global oil prices. In 2018, the trade deficit hit a record high of US$ -10,343 million, a result of prudent policy actions implemented by the Central Bank and the government. During the first half of the year, the trade deficit grew dramatically due to high import expenditures on gold, fuel, and personal vehicles, coupled with modest export performance. Nonetheless, the steep depreciation of the Sri Lankan rupee combined with governmental initiatives to reduce import spending from April 2018 to November 2018 resulted in a decrease in the trade deficit’s growth during the second half of the year.