FDI drives Sri Lanka trade deficit: imports up on China port city dredger

ECONOMYNEXT – Sri Lanka’s imports rose 16.4 percent in October 2016, from a year earlier to 1.9 billion US dollars with transport equipment rising 237 percent to 258 million dollars with the import of a dredger by a Chinese company showing how foreign investment drives the trade gap.

CHEC Port City (Pvt) Ltd, which is reclaiming the sea near Colombo port, imported a dredger, the Central Bank said. Without the dredger, imports were up 5.2 percent in October, the central bank said.

The trade deficit rose 32 percent to 1,051 million dollars in October. Foreign direct investment (exports of investments) is a key driver of trade deficit in all countries and particularly Sri Lanka, which is a net receiver of foreign investment. Building of factories with FDI also expands the trade deficit. The trade deficit is also driven by remmittances (exports of labour), tourism and net foreign borrowings by the government all which create dollar inflows outside the merchandise trade (exports) account for domestic agents to spend.

Vehicle imports plunged 55 percent to 64.6 million dollars from 145 million dollars a year earlier.

Textile and apparel imports rose 35 percent to 232 million dollars and diamonds and jewellery soard to 68.7 million dollars from 4.2 million dollars.

Building materials rose 6.3 percent to 134 million dollars.

Exports rose 0.9 percent to 955 million dollars with apparel rising 1.3 percent to 391 million dollars, rubber products rising 8.1 percent to 68.3 million dollars and machinery rising 32 percent to 36.3 million dollars.

Tea fell 9.4 percent to 108 million dollars, seafood rose 9.7 percent to 13.3 million dollars and spices fell 21 percent to 28.7 million dollars.

In the 10-month to October exports fell 2.6 percent to 8.6 billion US dollars, and imports rose 0.2 percent to 15.85 billion dollars.

The trade deficit expanded 3.7 percent to 7.23 billion US dollars. (Colombo/Feb03/2017)

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