Sri Lanka’s external sector growing in strength
Daily FT: Sri Lanka’s external sector remained robust in the first seven months of 2025, with the current account registering consistent monthly surpluses despite a widening of the merchandise trade deficit, according to the Central Bank of Sri Lanka (CBSL).
In its latest external sector data release, the CBSL highlighted that the current account registered a surplus of $ 1.7 billion during the first seven months, up 36.5% from $ 1.2 billion in the same period last year, with robust export growth, higher workers’ remittances, and improved earnings from services and tourism.
Merchandise trade dynamics showed signs of easing as the trade deficit narrowed in July 2025 to $ 580 million, compared to $ 603 million a year ago, with exports growing at a faster pace, up 15% year-on-year (YoY) to $ 1.3 billion in July 2025, compared to imports, which grew 8.5% to $ 1.9 billion during the month.
In the first seven months of 2025, the merchandise trade deficit widened 22.5% to $ 3.8 billion, up from $ 3.1 billion a year ago. Imports grew by 11.8% YoY to $ 11.64 billion, compared to $ 10.4 billion a year earlier, while merchandise exports grew 7.1% to $ 7.8 billion.
The seven-month merchandise trade deficit had widened due to a surge in imports in June. In June 2025 alone, imports amounted to $ 1.68 billion, up 16.3% YoY, while exports for the month stood at $ 1.14 billion. The monthly trade deficit in June 2025 reached $ 540 million, considerably higher than the $ 370 million deficit in the same month in 2024.
Vehicle imports In July 2025, comprising both personal and commercial vehicles, amounted to $ 193 million, leading to total vehicle imports of $ 668 million for the first seven months of 2025, the CBSL said.
The terms of trade deteriorated in July 2025, as the rise in import prices outpaced the increase in export prices, while the Sri Lankan rupee depreciated 3.3% year-to-date (YTD) to end-August 2025 against the US Dollar.
The services sector net inflows recorded a modest decrease in July 2025 relative to its performance in the corresponding period of 2024. However, net inflows in the services sector recorded a 3.3% increase during January-July 2025, amounting to $ 2.4 billion.
Tourist arrivals reached 200,244 during the month of July 2025, marking a growth of 6.6% compared to July 2024. Accordingly, earnings from tourism in July 2025 were estimated at $ 318 million. Further, earnings from tourism were estimated at $ 2 billion during January-July 2025, recording a slight increase compared to $ 1.9 billion in the corresponding period of 2024.
Workers’ remittances amounted to $ 697 million in July 2025, recording the highest monthly figure since December 2020, the CBSL said.
OSL take:
The growth recorded by Sri Lanka’s external sector is in line with the ongoing economic activities in the country and the overall economic expansion. Sri Lanka’s geographical positioning in the Indian Ocean, the many trade agreements as well as trade concessions enjoyed with many foreign countries and the incentives on offer for foreign businesses/investors, all indicate that Sri Lanka has become an emerging business destination in the South Asian region. The country has also managed to attract the attention of many leading foreign businesses/investors with even countries like China placing Sri Lanka prominently in its Belt and Road Initiative (BRI) due to Sri Lanka’s growing potential as a regional hub. Foreign businesses/investors could therefore confidently explore the expanding business/investment opportunities in Sri Lanka. They could also look at setting up bases in Sri Lanka to engage with other countries in the region using the preferential treatment and strong trade ties enjoyed by Sri Lanka with those countries.
| Article Code : | VBS/AT/20250904/Z_3 |