External sector buoyant

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. Earnings from exports recorded an increase of 24.3 percent to US dollars 906 million in December 2011 compared to that of December 2010. The expenditure on imports, although, increased by 33.7 percent to US dollars 1,910 million in December 2011, decelerating from a year-on-year increase of 78 percent reported for November 2011. The expenditure on imports was driven by continuing demand for investment and intermediate goods. Government infrastructure projects financed mainly by foreign loans also raised the demand for investment goods. The largest contribution to the export earnings in December 2011 came from industrial exports followed by agricultural exports. Industrial exports increased by 28.9 percent to US dollars 703million in December 2011 compared to the same month of 2010.

Among the industrial exports, textile and garments remained the major contributor and grew by 25.2 percent to US dollars 384 million followed by rubber products, food, beverages and tobacco and machinery and equipment.

The agricultural exports grew by 10.3 percent, year-on-year, in December 2011 mainly driven by tea and coconut exports. Earnings from tea exports grew by 10.5 percent and coconut exports recorded an impressive 97 percent growth in December 2011.

The rubber exports declined as the demand for rubber from domestic industries continued to remain elevated.

The continuous expansion in economic activities led the share of intermediate and investment goods to contribute around 81 per cent of the total imports in December 2011.

Intermediate goods imports increased by 33.1 percent in December 2011, mainly due to higher expenditure of US dollars 478 million on petroleum imports as average import price of crude oil stood at US dollars 110.57 per barrel compared to US dollars 90.37 per barrel in December 2010. Imports of investment goods recorded a substantial increase of 51.8 percent in December 2011, led by 91 per cent growth in transport equipment and 76.6 per cent growth in imports of building materials.

In cumulative terms, earnings from exports increased by 22.4 percent to US dollars 10,487 million in 2011 compared with 2010. The share of industrial exports in total exports stood at 76.4 percent in 2011. Among the industrial exports, the textiles and garments grew by 24.6 per cent to US dollars 4,201 million in 2011. Cumulative expenditure on imports during the year 2011 increased by 50.4 per cent to US dollars 20,230 million.

The investment goods imports increased by 60.3 per cent to US dollars 4,663 million, whereas the bulk of the expenditure recorded on machinery and equipment, transport equipment and building materials. Expenditure on petroleum imports increased by 53.4 percent to US dollars 4,630 million in 2011from US dollars 3,019 million in 2010, due to increase in both price and the volume.

The average import price of crude oil stood at US dollars 108.59 per barrel in 2011 compared with US dollars 79.52 per barrel in 2010. Further, expenditure on imports of textiles and clothing amounting to US dollars 2,231 million and gold amounting to US dollars 604 million contributed largely to intermediate goods imports. The expenditure on consumer goods imports was partly driven by import of motor cars and cycles to US dollars 1,001 million in 2011, as against US dollars 546 million in 2010. The trade deficit in 2011 stood at US dollars 9,743 million, a significant portion of which was on account of infrastructure related imports of the government that have been funded mainly by foreign loans.

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 dollars 830 million. The cumulative inflows on account of workers’ remittances grew by 25 per cent to US dollars 5,145 million in 2011. By end December 2011, gross official reserves, excluding Asian Clearing Union (ACU) balances, amounted to US dollars 5,958 million. Further, by end December 2011 total external reserves, which includes gross official reserves and foreign assets of commercial banks amounted to US dollars 7,199 million. In terms of months of imports, gross official reserves and total external reserves by end December 2011 were equivalent to 3.5 months and 4.3 months, respectively.