Mar 31, Colombo: The deficit in the merchandise trade account narrowed significantly in February 2023, compared to a year ago the Central Bank reported in its Performance review for the month on Friday.

The deficit in the merchandise trade account narrowed to US$ 39 million in February 2023, from US$ 780 million recorded in February 2022, due to the significant moderation of import expenditure, the report said.

The cumulative deficit in the trade account during January-February 2023 was US$ 449 million, a sizeable decline from US$ 1.636 billion recorded over the same period in 2022.

Despite recording a marginal growth compared to January 2023, earnings from merchandise exports declined by 10.2 percent in February 2023, year-on-year, to US$ 982 million.

Exports earnings recorded below US dollar 1 billion level for the second consecutive month.

While the decline in earnings was observed across all main categories, industrial exports mainly contributed to the overall contraction. Cumulative export earnings during January-February 2023 declined by 10.7 percent over the same period in the last year.

Expenditure on merchandise imports was almost halved in February 2023 at US$ 1.021 billion, compared to February 2022, recording the lowest imports since May 2020.

All major import sectors declined while the decline in expenditure on intermediate goods was significant.

Meanwhile, cumulative import expenditure during January-February 2023 also declined by 37.1 percent over the corresponding period in 2022.

Workers’ remittances recovered to US$ 407 million during February 2023, in comparison to US$ 205 million in the corresponding month in the previous year.

Tourist arrivals increased in February 2023 to 107,639, compared to 102,545 arrivals recorded in January 2023 and 96,507 recorded in February 2022. Earnings from tourism in the month of February 2023 are estimated at US$ 170 million, compared to US$ 162 million in the previous month and US$ 169 million in the corresponding month in the previous year.

Foreign investment in the government securities market recorded a notable net inflow in February 2023, while cumulative net inflow during January-February 2023 amounted to US$ 30 million

Gross official reserves stood at US$ 2.2 billion as at end February 2023. This included the swap facility from the People’s Bank of China, equivalent to around US$ 1.4 billion, which is subject to conditionalities on usability.

The Central Bank recorded a net absorption of foreign exchange from the market in February 2023, resulting in a marginal improvement in liquid reserves by end of February 2023.

Meanwhile, the first tranche of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF) was received in March 2023 amounting to SDR 254 million (about US$ 333 million).

Exchange rate continued to remain stable through February 2023 before notably appreciating during March 2023 with the removal of the guidance band and mandatory sales requirement amidst improved market sentiments.

Accordingly, during the year up to 31 March 2023, the rupee recorded an appreciation of 10.9 percent against the US dollar, compared to the appreciation of 0.4 per cent recorded by end February 2023.