|
|
|
 |
 |
 |
| Tuesday, 28 September 2004 |
 |
|
 |
News | |
| News Business Features Editorial Security Politics World Letters Sports Obituaries
|
Balance of payments The overall Balance of Payments (BOP) is estimated to have recorded a deficit of US dollar 223 million in the first half of 2004. This was the combined outcome of a widening of deficits in the trade and income accounts that could not be fully offset by the lower inflows to capital and financial accounts. However, moderate increases in the surpluses of services account and current transfers somewhat contributed to mitigate the widening current account deficit. The net inflows to the capital and financial accounts were not sufficient to finance the entire current account deficit and, as a result, the overall BOP recorded a deficit in the first half of 2004, states a press release from the Central Bank. The recovery in the global economy helped Sri Lanka's exports to continue to grow during the first half of the year. Export earnings grew by 9.6 per cent to US dollar 2,606 million during the first half of 2004. During the same period, imports grew at a significantly higher rate of 21.3 per cent. Consequently, the trade deficit widened to US dollar 1,126 million as compared to a deficit of US dollar 701 million in the first half of 2003. Investment goods recorded a 50 per cent growth, while intermediate goods grew at 19 per cent during the first half. The rapid growth in investment goods is an indication of an increase in the country's future production capacity and this will help sustain the economic growth momentum. The increase in intermediate goods partly reflects higher petroleum bills resulting from historically high international oil prices and increased volume of imports. During the first half of the year, the terms of trade deteriorated by 5.1 per cent mainly due to sharp increases in the import prices of sugar, crude oil and petroleum products and moderate growth in the export prices. In the services account, earnings from tourism grew marginally by 4.0 per cent during the first half, a lower rate than originally expected. However, the increased tourist arrivals in July numbering to over 50,000, the highest for any single month so far in 2004, indicate that the tourism sector is likely to grow at a faster rate in the second half of the year. Income from handling transhipment cargo increased by 8.5 per cent due to an increase in port-related services resulting from increased international trade during this period. This contributed to the increase in net inflows to the services accounts by 4.3 per cent to US dollar 163 million during the first half of 2004. Net inflows from worker remittances, which have been the primary source in offsetting a larger part of the trade deficit, increased by 6.0 per cent to US dollars 628 million during the first half. The increased inflows to services account and increased worker remittances were not sufficient to offset the trade account deficit resulting a higher current account deficit of US dollar 429 million compared to a marginal deficit of US dollar 2 million in the first half of 2003. The performance of net inflows to the capital and financial accounts has been mixed with a marginal increase in the capital account and a reduction in inflows to the financial account. Capital transfers to government and private sectors are recorded in the capital account, while all other capital flows to government and private sectors such as foreign direct investment, privatization proceeds, loans, and portfolio investment are recorded in the financial account. Net inflows to the capital and financial account amounted to US dollar 127 million in the first half of 2004 compared to US dollar 253 million in the corresponding period in 2003. In the capital account, transfers to government increased marginally by 3 million US dollars to 31 million US dollars in the first half of 2004. In the financial account, foreign loan disbursements to the government remain the single largest contribution to inflows. The gross inflows to government in the first half amounted to US dollar 284 million compared to US dollar 315 million received in the corresponding period in 2003. The disbursement of programme loans did not take place as expected contributing to low inflows to the government. Gross foreign direct investment inflows have been estimated to remain around similar levels of around US dollar 100 million as in the first half of 2003 but outflows have been higher mainly due to investment made abroad by a local commercial bank, resulting in a lower net inflow of foreign direct investment. Net inflows to the share market declined to US dollar 6 million from US dollar 21 million in the first half of 2003. Net foreign assets of commercial banks increase by US dollar 94 million during the first half of 2004, reflecting a build up of foreign assets held abroad by commercial banks. Reflecting overall deficit in the BOP the gross official reserves declined from US dollar 2,329 million (4.2 months of imports) at end December 2003 to US dollar 2,104 million (3.5 months of imports) at end June 2004. Showing similar trend, the total external reserves of the country, which include foreign exchange reserves of commercial banks declined from US dollar 3,218 million (5.8 months of imports) at the end December 2003 to US dollar 3,130 million (5.2 months of imports) at end June 2004. Foreign exchange market and exchange rates - Developments so far in 2004. The domestic foreign exchange market, which experienced relatively higher volatility during 2004 stabilized around Rs. 103 per US dollar towards the mid August. Lower foreign inflows and higher import outlay contributed to the volatility in the foreign exchange market. The Central Bank intervened in the market to contain excessive volatility, though at a cost of declining official reserves. The rupee depreciated by 6.2 per cent to Rs. 103.12 per US dollar by end August in comparison to the depreciation of rupee against the US dollar by 0.06 per cent during the same period in 2003. The rupee depreciated only by 0.07 per cent in the first quarter of 2004 but depreciated at a higher rate thereafter. The sharper depreciation during the second quarter of 2004 was mainly resulted by the increased deficit in the balance of payments which rose to US dollars 223 million by end June from the deficit of US dollars 40 million during the first quarter of 2004. The appreciation of the US dollar against most major international currencies also contributed to the higher depreciation of the rupee against the US dollar. Currencies of India, Pakistan, Bangladesh, Singapore, Indonesia, the Philippines, and Thailand also depreciated against the US dollar during 2004. In line with the cross currency movements in the international markets during first eight months of 2004, the rupee depreciated against the pound sterling (7.1 per cent), the Japanese yen (3.9 per cent), the euro (2.3 per cent) and the Indian rupee (4.8 per cent). The rupee depreciated against the SDR by 4.6 per cent. The Nominal Effective Exchange Rate (NEER) based on 24-currency basket depreciated by 5.1 per cent, while the 24-currency Real Effective Exchange Rate (REER) depreciated by 2.3 per cent, indicating the depreciation of the rupee is not excessive once adjusted for the inflation differentials between Sri Lanka and its trading partners. The depreciation in the REER improved the external competitiveness of the country marginally. During the first eight months of 2004, activities in the foreign exchange forward market were less intensive than activities in 2003, reflecting uncertainty and volatility that prevailed during the early part of 2004. The volume of forward transactions decreased by 22.5 per cent to US dollars 750 million during the first eight months of 2004 from US dollars 968 million during the corresponding period of 2003. The volume of forward transactions, which declined sharply in April reverse its trend and increased during May to July. Most transactions recorded were for maturity periods of one month or less. Outlook for the Year Preliminary data for the months of July and August indicate that the rate of increase in the BOP deficit is declining significantly reducing the pressure on exchange rate. The BOP is estimated to record a surplus in the second half of the year, if crude oil price remains below US dollar 40 per barrel and government receives privatization proceeds from the third player in the petroleum sector and expected program loans from the donor agencies. The current account situation is expected to improve by the end of the year due to expected slow down in imports and continuous growth in exports. The government's attempts to obtain external financing facilities for oil imports will also help to contain the BOP deficit in 2004. |
|
News | Business | Features
| Editorial | Security
Produced by Lake House |
