Sri Lanka trade deficit rises 78% in ten months

Colombo: Sri Lanka's trade deficit for the first 10 months of the year widened nearly 78 per cent to $5.17 billion, suggesting more pressure on the country's balance of payments and rupee, data showed.

The trade deficit in October widened 22.7 per cent to $556.5 million from $453.4 million a year earlier, central bank figures showed.

The bank originally forecast a full-year trade deficit of $3.97 billion.

"This is mainly because of highest ever oil prices this country faced during the first few months," said Nandalal Weerasinghe, chief economist at the central bank.

Analysts said the ten-month trade deficit was the biggest in a year. The central bank declined to comment.

"Increasing trade deficit will put severe pressure on the balance of payments and the rupee," said Dhan-ushka Samarasinghe, head of research at Asia Securities.

"There is a tendency for the rupee to fall further with this kind of high trade deficit. If the central bank does not devalue the rupee accordingly, then there will be inflationary pressure."

The rupee fell to its lowest in more than a year yesterday at 111.00 per dollar. The central bank has allowed the currency to ease in value from 108 since mid-September.

Currency dealers said the central bank's decision to let the rupee slide was to ease pressure on dwindling foreign currency reserves.

The reserves fell to $2.37 billion by the end of October, enough to cover just over two-months of imports, Weerasinghe said.

Analysts said the reserves have fallen from $3.42 billion at the end of August as the central bank intervened in the currency markets to support the rupee. Economists estimate they fell to $1.9 billion by the end of November.

Petroleum bills

However, a central bank statement said the sharp fall was due to repayment of large petroleum bills and outflow of foreign investment.

The central bank has already conceded that protecting the rupee, plus other factors, could result in a balance of payments deficit at the end of the year.

Exports in October, led by tea, garments and other agricultural products, rose 5.9 per cent to $661.2 million, compared with October 2007. Imports in October rose 13 per cent from a year earlier to $1.22 billion.

The central bank earlier said Sri Lanka's trade deficit expanded 5.6 percent in 2007 to $3.56 billion, and predicted an 11.5 per cent increase to $3.97 billion in 2008.

Petroleum imports rose 53.3 per cent in the first 10 months of the year to $3 billion, which accounted for 25.2 per cent of the total import bill of $12 billion.