Foreign investment, aid and tourist earnings may
flow in but trade deficit widens
increasing inflow of foreign investment and aid flows, increasing
tourist earnings and the enhancement in foreign exchange reserves
may well blind us to the fact that the country's trade deficit is
high and increasing.
This is also
due to a concealment of the severity of the trade deficit owing
to a comparison of our export performance this year with the poor
performance of last year.
Presenting our exports as increasing in comparison with that of
the comparative month or period of last year is deceptive. Such
a comparison indicates a favourable performance as last year's trade
performance was poor. It masks the fact that the trade deficit is
large and increasing.
This is rather
unfortunate, as it is the trade balance is a good indicator of whether
our trade dependent economy is robust. The foreign aid flows and
investments have contingent liabilities that result in an outflow
of funds at a latter time, unlike export earnings.
They are also
very much dependent on foreign perceptions of the political situation
that could change dramatically and change the flow of funds. The
trade balance conversely measures the fundamental health indicators
of the economy.
At the end of
the first seven months of this year the trade deficit had grown
to US $ 823.5 million. We take satisfaction that it is about 19
per cent lower than the deficit in the same period of last year.
Such contentment is based on a deception as we amassed a huge trade
deficit of US$ 1.4 billion dollars last year, higher than the trade
deficit of 2001.
At the current
level of monthly trade deficits we are likely to have another massive
trade deficit of over 1 billion US Dollars: about 1.2 to 1.3 billion
US Dollars. Trade deficits have become endemic in Sri Lanka. We
have not had even a modest trade surplus in the last 25 years.
This is indeed
indicative of fundamental weaknesses in the economy and the structure
of our trade. Although export statistics for the first seven months
disclose a favourable development, it is in comparison with a poor
export performance of last year. The export earnings of this year
compare unfavourably with the 2000 export statistics.
In 2000 the
country recorded a significant 20 per cent increase in exports.
Since then the performance has been unsatisfactory, mainly due to
external factors. In 2001 industrial export values dipped by 13.4
per cent to US $ 3710 million.
continued into 2002, when industrial exports fell a further 2.1
per cent to US$ 3631 million. In the first seven months of this
year the industrial export performance has been better than that
of 2002,but is much less than our export earnings in 2000.
In the first
seven months of this year (January to July 2003) exports grew by
17.6 percent, compared to the exports of the first seven months
of last year. Industrial exports grew by 21 per cent, while agricultural
exports declined by 1.7 per cent. The industrial export growth of
21 per cent was significant in relation to the export performance
of the first seven months of last year and signifies a recovery
in industrial exports. Yet as the industrial export performance
of 2002 was poor, our industrial export growth was inadequate to
make a significant dent on the trade deficit. In fact industrial
exports declined by 2.1 per cent last year.
This was after
a 13.4 per cent decline in the previous year (2001). Our industrial
export earnings so far this year is much lower Although the 16 per
cent growth in garment exports, the largest export item, was mostly
responsible for the improved export performance, it was less than
the 18 per cent growth recorded at the half-year mark. Rubber and
leather goods, the second most important industrial export category,
increased 13.5 per cent in the first seven months, again less than
the 15 per cent growth recorded for the first six months of this
year compared to the first half of last year.
feature is that the increase in industrial exports in July was only
US $ 76 million. The value of exports for the first seven months
of this year at US $ 2218 million was only 52 per cent of the export
value for 2000, whereas it should have been about 58 per cent, if
exports were to be around the value of 2000. Although the value
of industrial exports so far (first seven months of this year) is
higher than for the same seven-month period in 2002 ,it is lower
than the industrial exports of 2001. And it is much lower than the
industrial export value of the first seven months of 2000.
in industrial exports, particularly since about April-May this year
and in June, has not been maintained in July. As a result the expectation
of a good industrial export performance this year is less certain.
Consequently it is likely that once again the country will have
a massive trade deficit. this year.