Sri Lanka trade deficit expands nearly 100 percent in 2011

Feb 24, Colombo: Despite the continued external sector growth momentum and expanding exports Sri Lanka’s cumulative trade deficit widened to nearly US$ 10 billion last year, the Central Bank reported Friday in its External Sector Performance Review.

The trade deficit from January to December 2011 expanded 99.6 percent to US$ 9.74 billion from a US$ 4.88 billion in the previous year.

The Bank attributed the ever expanding deficit to the increasing expenditure on imports for government infrastructure projects financed mainly by foreign loans and to the continuing demand for investment and intermediate goods.

Earnings from exports increased 24.3 percent to US$ 906 million in December 2011 compared to that of December 2010. However, the expenditure on imports also increased by 33.7 percent to US$ 1.91 billion in December 2011, the Bank recorded.

“The external sector remained buoyant in 2011 with expanding external trade, growing services inflows and workers’ remittances and higher long-term inflows of direct investments and inflows to the government amidst challenging external environment,” the Central Bank said in its review.

The largest contribution to the export earnings in December 2011 have been from industrial exports followed by agricultural exports.

For the year 2011, industrial exports earned US$ 8.02 billion and agricultural exports brought in US$ 2.34 billion, of which US$ 1.48 billion were from tea exports.

Exports of garments and textiles were the main contributor for industrial exports earning US$ 4.20 billion.

According to the data, expenditure on petroleum imports increased by 53.4 percent to US$ 4.63 billion in 2011 from US$ 3.02 billion in 2010, due to increase in both price and the volume.

The tourist arrivals in 2011 increased by 30.8 percent to 855,975 while earnings from tourism grew at a healthy rate of 44.2 percent to US$ 830 million. The cumulative inflows on account of workers’ remittances grew by 25 percent to US$ 5.145 billion in 2011.

By end December 2011, total external reserves, which include gross official reserves and foreign assets of commercial banks, amounted to US$ 7.2 billion.

The Central Bank earlier this month raised the interest rates for the first time since 2007 to control the spiraling trade deficit and to stop the decline in foreign reserves.

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