Both exports and imports increased during the first
half of 2003 continuing the momentum in late 2002. Exports
in US dollar terms increased by 18 per cent during the
first half of 2003 in contrast to a decline of 17 per
cent during the first half of 2002. The global economic
recovery strengthened the market for Sri Lankan products,
particularly garments, machinery, mechanical and electrical
equipment, rubber based products, diamonds, crustaceans
and molluscs, fish products and plastics. Compared with
an 11 per cent decline in the first half of 2002, imports
increased by 7 per cent during the first half of 2003
in response to several factors including increased derived
demand for intermediate goods, domestic economic recovery
which raised the
demand for investment and consumer goods and higher
prices of petroleum and other major commodities. The
trade balance improved during the first half of 2003,
as the increase in imports was lower than in exports.
With the expected growth in the global economy particularly,
USA and European countries, annual export earnings are
expected to increase by 11 per cent while annual expenditure
on imports is projected to increase by 13 per cent in
2003.
The trade deficit during the first half of 2003 declined
to US dollars 700 million from US dollars 863 million
during the corresponding period in 2002. However, expected
high growth in imports during the latter half of 2003
will offset the growth in exports resulting in a higher
trade deficit at end 2003. Hence, the annual trade deficit
is expected to expand to US dollars 1,704 million in
2003 compared with US dollars 1,406 million in 2002.
Export earnings continued to increase during the first
half of 2003 maintaining the growth momentum generated
since late 2002. Exports increased by 18 per cent during
the first half of 2003 in contrast to a decline of 17
per cent during the first half of 2002.
Imports increased by 7 per cent during the first half
of 2003 in response to several factors, viz., higher
export demand and domestic economic activities, higher
expenditure on petroleum and fertiliser on account of
increased prices and a significant increase in non-food
consumer goods imports.
Consequently, the trade balance for the first half of
2003 was a deficit of US dollars 669 million compared
to US dollars 875 million during the first half of 2002.
However, the annual trade deficit in 2003 is expected
to be higher than that of 2002, as the growth in imports
is expected to be higher during the second half.
Terms
of trade improved in favour of Sri Lanka during the
first half of 2003, reflecting a higher growth in the
unit value index of exports relative to the growth in
the unit value index of imports.
During the first half of 2003, the unit value index
of imports remained unchanged at the same level as in
the first half of 2002, while the unit value index of
exports increased by 10 per cent reflecting unit price
increases mainly for garments and rubber based products.
As a result, the terms of trade improved by 10 per cent
during the first half of 2003.
• USA continued to be the largest single
destination for Sri Lanka’s exports (38 per cent)
during January to June 2003. Sri Lanka’s exports
to USA are mostly garments (77 per cent). The European
Union (EU), dominated by the United Kingdom, was the
second largest destination (28 per cent), while Asian
countries (12 per cent) led by India and the Middle
East (8 per cent), were the third and fourth groups
of countries.
Benefiting from the Indo-Sri Lanka Free Trade Agreement
(ISFTA), India became the third largest single export
destination for Sri Lanka accounting for more than 5
per cent of total exports.
• India became the largest single exporter to
Sri Lanka (15 per cent) followed by Hong Kong (9 per
cent), Singapore (8 per cent) and South Korea, Malaysia
and China (5 per cent each).
Accordingly, Asian countries, as a group, continue as
the main origin of Sri Lanka’s imports, accounting
for 57 per cent of total imports. Japan (7 per cent),
Iran (6 per cent), UK (4 per cent), United Arab Emirates
and USA (3 per cent each) were the other major suppliers
to Sri Lanka during the first half of 2003.
As identified in the “Regaining Sri Lanka”
policy document the present external trade and tariff
policy aims to achieve a liberal and less protective
tariff regime characterised by a low and uniform tariff
structure. However, that policy direction was interrupted
with the introduction of a number of tariff bands in
November 2002 replacing the two band tariff system of
10 and 25 per cent which had been in effect since February
2000. A large number of duty free items (1,666 items)
were brought under the new band of 2 per cent, while
another 62 items were brought under the 20 per cent
band. Some selected machinery and equipment were kept
under the 5 per cent rate of tariff while 1,256 items
were taxed at 25 per cent. A few items such as liquor
and tobacco continue to be liable at higher rates of
75 and 100 per cent respectively.
Meanwhile, 46 items including major agricultural products,
are still subject to specific duties. The specific duty
on rice was raised from Rs.5 per kg to Rs.7 per kg on
5 March 2003 and then increased to Rs.9 per kg on 21
August 2003 creating uncertainty in the market. However,
distortions by way of duty waivers, exemptions and introduction
of surcharges were maintained at a minimum level in
line with the present policy direction. With effect
from 4 September 2003, the 2 per cent tariff band was
raised to 2.5 per cent while a specific duty of Rs.6
per kg on big onions,preserved and dried onions and
Rs.3.50 per kg on sugar were raised to Rs.8 per kg and
Rs.3.75 per kg respectively.
The Consumer Affairs Authority Act, was enacted on 9
January 2003 and the Consumer Affairs Authority was
established on 1 July 2003 to promote effective competition
and to protect consumers from unfair trade practices.
| International
Trade Relations |
In line with the medium term policy objectives of enhancing
trade with South Asian countries, commitments under
the Indo-Sri Lanka Free Trade Agreement (ISFTA) at the
end of the third year of entry into the Agreement were
honoured by granting further concessions on selected
items from 5 March 2003. Under the ISFTA, the Indian
government made 2,799 tariff lines duty free for Sri
Lanka from 18 March 2003. With this revision, 4,150
tariff lines (81 per cent of total tariff lines) in
the Indian tariff schedule are free from duty for imports
originating from Sri Lanka.
Under the Article XII of the ISFTA, a Joint Committee
established at Ministerial level has to meet at least
once a year to review progress in the implementation
of the Agreement. The second Senior Officials meeting
was held during 18-19 July 2003 in New Delhi, India
before the next Joint Ministerial Committee Meeting.
Achievements in this meeting show some progress towards
improving market access and improving trade facilitation.
India agreed to include three additional entry ports
for garments shipped from Sri Lanka. Furthermore, India
agreed to deepen the present tariff concessions on textile
imports while agreeing to provide both sea and airport
access for entry points granted for tea and ready made
garments in previous negotiations. Arrangements will
be made by India to issue visas for Sri Lankan businessmen
without the requirement of a personal interview and
based on letters issued by business chambers or the
Government of Sri Lanka.
A joint study group is preparing a framework for a comprehensive
economic partnership agreement (CEPA) between the two
countries expanding the coverage to services in trade,
investment and economic corporation.
Further progress was made on the Framework Agreement
for the Sri Lanka-Pakistan Free Trade Agreement by reaching
agreements on due dates for annexes containing offers
and Rules of Origin criteria.
The second meeting of the Joint Council established
under the Trade and Investment Framework Agreement (TIFA)
signed between Sri Lanka and the USA was held on 25
March 2003 in Washington D.C. USA. Both the USA and
Sri Lanka agreed to explore the possibility of organising
outward and inward trade missions to promote trade relations.
Other major issues discussed were participation in the
US Container Security Initiative, the possibility of
obtaining technical assistance and training for effective
enforcement of the Intellectual Property Rights legislation,
capacity building and moving forward with the Doha Development
agenda of the World Trade Organisation (WTO).
However, a careful evaluation of the benefits from that
bilateral agreement should be carried out through comprehensive
analytical work.
Tourism
Tourist arrivals, which had shown a substantial improvement
during the second half of 2002, continued to increase
throughout the first half of 2003, recording a 25 per
cent growth over the corresponding period in 2002. Following
this trend in arrivals, gross earnings from the tourist
industry increased by 28 per cent to US dollars 119
million during the first half of 2003.
During the first half of the year, three major markets,
viz UK, India and Germany, accounted for nearly 50 per
cent of arrivals. Even more arrivals are expected by
end 2003 provided the peace process continues. According
to the Sri Lanka Tourist Board (SLTB), tourist arrivals
are expected to exceed 500,000, recording a growth of
27 per cent in 2003.
At the end 2002 there were 13,181 rooms in 222 hotels
and the average occupancy rate was 43.1 per cent. During
the first half of 2003 the number of hotel rooms increased
to 13,565 rooms and the occupancy rate rose to 49.7
per cent.
To provide additional accommodation to tourists in the
East, a duty waiver was granted for the period from
25 March 2003 to 31 December 2003, in respect of motor
vehicles designed for motor homes for tourism and accommodation
related purposes.
SriLankan Airlines operates flights to 32 destinations
in 21 countries. With the significant rise in tourist
arrivals from India, SriLankan Airlines has introduced
additional flights to Cochin in May 2003 and Karachi
in June 2003. Malaysian Airlines increased weekly flight
frequency from 2 to 3 times in July 2003. Kuwait Airways,
which had suspended operations after the bomb attack
at Katunayake in July 2001, resumed flights to and from
Sri Lanka 5 times a week from July 2003. Air Monarch
charter flights are planning to operate from UK during
the period from 3 November 2003 to 27 April 2004. To
meet the growing demand from India, a ferry service
is planned to be operated from Colombo to Tuticorin.
The SLTB is expected to be restructured under the new
Tourism Act while a special levy is expected to be introduced
on all tourist related activities to fund tourist promotion
activities.
Under the new proposal, functions of the SLTB will be
distributed among three entities, i.e., Tourism Development
Council for tourism planning and regulation of tourist
services, a Marketing Bureau to carry out overseas marketing
and promotions and a training institute to train personnel.
New levies were introduced to generate funds for financing
the proposed three institutions. The Airport Embarkation
Levy was increased by US dollars 5 per person while
a 1 per cent levy was imposed from 1 September 2003
on turnover in all establishments such as hotels, guest
houses etc. approved by the SLTB.
The government, with industry participation, is taking
major initiatives to re-position Sri Lanka by changing
the image of the tourism industry to an eco center,
thereby attracting high end tourists to the country.
A BOI project, aiming at converting old mansions and
bungalows into hotels is now in place. Eight selected
zones have been identified from the west coast to the
south coast. Two proposed
expressways, from Colombo to Katunayake and Colombo
to Matara, will help the tourist industry.
Expected Developments in 2004
Export growth (in US dollar terms) is expected to be
around 11 per cent in 2004 as the global economy is
projected to grow at a higher rate of about 4.1 per
cent in 2004. The major impetus for the high growth
in exports is expected to come from industrial exports,
including garments and tea.
Imports are also estimated to grow at a rate of over
12 per cent, particularly, if major reconstruction work
commences in 2004 with
further progress in the peace process. The growth in
imports is expected to be led by investment and intermediate
good imports. As a result, the trade deficit is expected
to widen from 9.3 per cent of GDP in 2003 to 9.6 per
cent of GDP in 2004.
The tourist industry, which showed significant improvement
throughout the first half of 2003, is expected to grow
further in 2004 as peace process progresses. Tourist
arrivals are expected to reach 650,000 in 2004 a 30
per cent growth over 2003.
Both exports and imports increased during the first
half of 2003 continuing the momentum in late 2002. Exports
in US dollar terms increased by 18 per cent during the
first half of 2003 in contrast to a decline of 17 per
cent during the first half of 2002. The global economic
recovery strengthened the market for Sri Lankan products,
particularly garments, machinery, mechanical and electrical
equipment, rubber based products, diamonds, crustaceans
and molluscs, fish products and plastics. Compared with
an 11 per cent decline in the first half of 2002, imports
increased by 7 per cent during the first half of 2003
in response to several factors including increased derived
demand for intermediate goods, domestic economic recovery
which raised the demand for investment and consumer
goods and higher prices of petroleum and other major
commodities. The trade balance improved during the first
half of 2003, as the increase in imports was lower than
in exports. With the expected growth in the global economy
particularly, USA and European countries, annual export
earnings are expected to increase by 11 per cent while
annual expenditure on imports is projected to increase
by 13 per cent in 2003.
International Trade Relations
• In line with the medium term policy objectives
of enhancing trade with South Asian countries, commitments
under the Indo-Sri Lanka Free Trade Agreement (ISFTA)
at the end of the third year of entry into the Agreement
were honoured by granting further concessions on selected
items from 5 March 2003. Under the ISFTA, the Indian
government made 2,799 tariff lines duty free for Sri
Lanka from 18 March 2003. With this revision, 4,150
tariff lines (81 per cent of total tariff lines) in
the Indian tariff schedule are free from duty for imports
originating from Sri Lanka.
• Under the Article XII of the ISFTA, a Joint
Committee established at Ministerial level has to meet
at least once a year to review progress in the implementation
of the Agreement. The second Senior Officials meeting
was held during 18-19 July 2003 in New Delhi, India
before the next Joint Ministerial Committee Meeting.
Achievements in this meeting show some progress towards
improving market access and improving trade facilitation.
• India agreed to include three additional entry
ports for garments shipped from Sri Lanka.
Furthermore, India agreed to deepen the present tariff
concessions on textile imports while agreeing to provide
both sea and airport access for entry points granted
for tea and ready made garments in previous negotiations.
Arrangements
will be made by India to issue visas for Sri Lankan
businessmen without the requirement of a personal interview
and based on letters issued by business chambers or
the Government of Sri Lanka.
• A joint study group is preparing a framework
for a comprehensive economic partnership agreement (CEPA)
between the two countries expanding the coverage to
services in trade, investment and economic corporation.
• Further progress was made on the Framework Agreement
for the Sri Lanka-Pakistan Free Trade Agreement by reaching
agreements on due dates for annexes containing offers
and Rules of Origin criteria.
• The second meeting of the Joint Council established
under the Trade and Investment Framework Agreement (TIFA)
signed between Sri Lanka and the USA was held on 25
March 2003 in Washington D.C. USA. Both the USA and
Sri Lanka agreed to explore the possibility of organising
outward and inward trade missions to promote trade relations.
Other major issues.
• At the end 2002 there were 13,181 rooms in 222
hotels and the average occupancy rate was 43.1 per cent.
During the first half of 2003 the number of hotel rooms
increased to 13,565 rooms and the occupancy rate rose
to 49.7 per cent.
• To provide additional accommodation to tourists
in the East, a duty waiver was granted for the period
from 25 March 2003 to 31 December 2003, in respect of
motor vehicles designed for motor homes for tourism
and accommodation related purposes.
• SriLankan Airlines operates flights to 32 destinations
in 21 countries. With the significant rise in tourist
arrivals from India, SriLankan Airlines has introduced
additional flights to Cochin in May 2003 and Karachi
in June 2003.
Malaysian Airlines increased weekly flight frequency
from 2 to 3 times in July 2003. Kuwait Airways, which
had suspended operations after the bomb attack at Katunayake
in July 2001,
discussed were participation in the US Container Security
Initiative, the possibility of obtaining technical assistance
and training for effectiveresumed flights to and from
Sri Lanka 5 times a week from July 2003. Air Monarch
charter flights are planning to operate from UK during
the period from 3 November 2003 to 27 April 2004.
To meet the growing demand from India, a ferry service
is planned to be operated from Colombo to Tuticorin.
| 1990
= 100 |
| |
Prices |
Volume |
| Year |
Exports |
Imports |
Exports |
Imports |
Terms
of Trade |
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999(b)
2000(b)
2001
2002 |
5.6
6.9
5.3
5.3
5.9
6.3
5.9
5.6
5.6
5.6
5.6
5.3
5.3
5.3
5.3
5.3
4.9
4.6
5.6
5.6
5.6
5.6
5.6
6.6
10.2
9.6
11.2
18.1
33.0
36.0
41.6
42.6
41.7
53.2
68.1
60.4
53.6
62.1
76.2
91.7
100.0
105.0
131.8
144.7
151.7
174.2
194.9
213.0
244.7
244.1
266.7
297.3
304.8 |
1.1
1.5
1.5
1.5
1.3
1.2
1.2
1.3
1.2
1.2
1.2
1.2
1.2
1.3
1.6
1.5
1.5
1.5
1.9
2.0
2.2
2.3
2.4
3.2
5.7
6.6
5.9
7.3
13.5
20.5
29.3
38.0
39.5
41.4
43.3
46.8
43.3
49.0
67.0
80.2
100.0
103.9
108.8
114.6
121.0
140.2
153.2
163.7
165.8
174.2
202.7
229.0
226.2 |
48.1
48.7
49.3
50.5
52.4
55.4
51.8
50.5
53.6
52.4
56.0
57.8
62.1
59.7
65.2
67.6
61.5
63.9
65.8
62.7
65.2
63.3
62.1
62.7
54.2
65.2
62.1
57.2
60.9
61.5
60.3
62.1
65.2
61.5
72.0
74.5
79.5
80.7
77.4
77.1
100.0
101.1
105.1
120.2
131.5
140.9
146.4
161.9
159.5
167.6
198.2
182.0
185.7 |
34.8
39.2
39.2
39.8
37.0
41.5
46.5
49.3
49.9
57.8
56.6
45.4
46.0
39.2
48.2
36.4
49.9
42.6
43.2
46.0
43.2
38.1
37.6
33.6
23.5
29.2
32.0
40.9
56.1
69.0
78.5
81.3
81.3
89.4
92.7
88.6
100.8
103.3
98.4
92.9
100.0
113.2
131.0
153.4
172.1
176.7
181.4
203.8
221.1
221.5
250.3
224.4
249.0 |
519.9
467.1
355.9
355.9
440.4
516.5
489.3
415.9
462.1
462.1
462.1
434.9
434.9
391.4
326.2
355.9
333.6
311.4
397.1
277.3
259.9
244.7
231.1
203.9
180.6
144.8
189.0
249.2
244.7
175.4
142.1
111.9
105.5
128.3
157.1
129.2
123.7
126.7
113.7
114.3
100.0
101.1
121.1
126.3
125.4
124.3
127.2
130.1
147.6
140.1
131.6
129.8
134.7 |
| Continue.. |
| 1990
= 100 |
| |
Value |
|
| Year |
Exports |
Imports |
Terms
of Trade |
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999(b)
2000(b)
2001
2002 |
3.0
3.6
3.8
3.0
3.4
3.8
3.2
3.2
3.2
3.4
3.6
3.2
3.6
3.4
3.6
3.8
3.4
3.2
4.0
3.8
3.8
3.8
3.6
4.8
5.0
6.4
7.2
10.2
20.0
21.8
23.8
26.5
27.0
32.8
48.7
45.0
42.9
50.3
59.0
70.7
100.0
106.2
138.5
173.8
199.5
245.5
285.4
345.1
390.7
409.3
528.7
541.5
566.3 |
1.8
2.2
2.4
2.2
1.9
1.9
2.2
2.5
2.4
2.7
2.5
2.1
2.1
1.9
2.4
1.8
2.4
2.1
2.7
2.8
2.7
2.4
2.4
2.7
4.2
5.0
3.6
4.6
14.8
20.8
30.4
30.9
32.1
36.7
40.1
41.4
43.8
50.6
65.9
74.5
100.0
117.6
142.5
175.8
208.2
247.8
277.9
319.4
351.0
369.9
485.8
491.9
539.5 |
519.9
467.1
355.9
355.9
440.4
516.5
489.3
415.9
462.1
462.1
462.1
434.9
434.9
391.4
326.2
355.9
333.6
311.4
397.1
277.3
259.9
244.7
231.1
203.9
180.6
144.8
189.0
249.2
244.7
175.4
142.1
111.9
105.5
128.3
157.1
129.2
123.7
126.7
113.7
114.3
100.0
101.1
121.1
126.3
125.4
124.3
127.2
130.1
147.6
140.1
131.6
129.8
134.7 |
(a)
Indices based on 1978, 1981, 1985 and 1997 have
been adjusted to the base year 1990.
(b) Excluding the value of aircraft imported
by SriLankan Airlines in 1999 and 2000. |
