Sri Lanka’s external sector held steady over the first five months of 2025, with current account surpluses underpinned by a continued recovery in tourism and a surge in worker remittances, despite pressure from a widening merchandise trade gap compared to last year.
Trade data for May showed the merchandise deficit expanding against May 2024, as import growth outstripped export gains. Vehicle imports alone rose to $ 118 million in May, bringing the cumulative figure for the year to $ 312 million.
Nonetheless, the trade deficit narrowed from April, offering a modest reprieve. The country’s terms of trade, however, slipped in May as import prices climbed faster than export prices.
The United States, India, and the United Kingdom remained Sri Lanka’s top export markets, while China, India, and the United Arab Emirates continued as leading import partners, both for May and the January-May period.
The services sector provided critical support to the external account, recording net inflows of $ 1.8 billion for the first five months of the year, a 6.8% rise from the same period in 2024, despite a slight slowdown in May.
Tourism was a key contributor, with earnings of $ 164 million in May and a cumulative $ 1.5 billion so far this year, underscoring the sector’s resilience amid global travel uncertainties.
Workers’ remittances offered another pillar of strength, increasing by 17.9% year-on-year (y-o-y) in May and pushing total remittance inflows to $ 3.1 billion over the five-month period.
On the financial side, foreign investment in government securities returned to a marginal net inflow in May, reversing the net outflow seen in April. The Colombo Stock Exchange also saw a modest net foreign inflow during the month.
Sri Lanka’s gross official reserves stood at $ 6.3 billion at end-May, broadly unchanged from April levels, including the swap facility with the People’s Bank of China.
As of end-June, the Sri Lanka rupee had depreciated by 2.5% against the US dollar on a year-to-date basis, reflecting manageable currency adjustments in the face of shifting external dynamics.