Sri Lanka’s trade deficit widens to US$5.5 Billion

Sri Lanka’s merchandise trade deficit widened to US$5.49 billion in the first half of 2026 as goods imports grew much faster than goods exports.

The deficit increased from US$3.27 billion during the same period in 2025, according to the Central Bank of Sri Lanka’s External Sector Performance report for June 2026, released on July 31.

Merchandise exports increased by 6.3% to US$6.90 billion during the first six months of 2026, from US$6.49 billion a year earlier. Meanwhile, merchandise imports rose by 26.9% to US$12.39 billion, compared with US$9.76 billion during the corresponding period in 2025.

Total exports, including goods and services, reached US$10.43 billion during the first half of the year. This was a 3.3% increase from the same period last year.

In June alone, the merchandise trade deficit widened to US$828.5 million, from US$540.3 million in June 2025.

Merchandise exports increased slightly by 0.2% to US$1.14 billion during the month, while merchandise imports rose by 17.3% to US$1.97 billion.

Total exports, including goods and services, amounted to US$1.66 billion in June, recording a year-on-year increase of 0.6%.

Fuel import expenditure increased by 40.2% compared with June last year, mainly due to higher spending on refined petroleum products. However, monthly expenditure declined from US$886 million in April to US$536 million in May and US$465 million in June.

Total fuel import expenditure reached approximately US$3.17 billion during the first half of 2026, representing an increase of 58.8% from the same period last year.

Expenditure on personal and commercial vehicle imports fell by 27.1% from the previous month to US$182 million in June. Total vehicle import expenditure amounted to US$1.25 billion during the first six months of 2026, down from US$1.57 billion recorded during the second half of 2025.

The Central Bank said Sri Lanka’s terms of trade deteriorated in June because import prices increased faster than export prices. The terms of trade for the first half of 2026 also declined compared with the same period last year.

The services account recorded a surplus of US$161.9 million in June, down 33.8% from US$244.3 million a year earlier. This was mainly because payments for foreign services grew faster than earnings from services.

The cumulative services account surplus declined by 22.4% to US$1.60 billion during the first six months of 2026.

Services inflows increased by 1.6% to US$516.3 million in June. However, total services inflows during the first half of the year fell by 2.2% to US$3.53 billion.

Services outflows rose by 34.2% to US$354.4 million in June and increased by 24.5% to US$1.93 billion during the first half of the year.

Spending on overseas travel increased by 70.4% to US$92.7 million in June. Cumulative overseas travel expenditure rose by 82.7% to US$632.5 million during the six-month period.

Tourist arrivals declined by 9.9% in June amid the continuing impact of the conflict in the Middle East. Sri Lanka received 124,551 tourists during the month.

Total tourist arrivals during the first half of 2026 declined to 1,146,573, from 1,168,044 during the same period in 2025.

Tourism earnings fell by 10.8% to an estimated US$151.1 million in June. Cumulative tourism earnings declined by 11.8% to US$1.51 billion.

Earnings from sea and air transport services increased by 5.5% to US$196.6 million in June. However, cumulative earnings from these services declined by 1.6% to US$995.4 million.

Computer and IT/BPO service earnings fell by 1.2% to US$68.6 million in June. Earnings from the sector declined by 11% to US$372.5 million during the first six months of the year.

Workers’ remittances increased by 9.3% to US$695 million in June. Cumulative remittance inflows rose by 23.2% to US$4.60 billion during the first half of 2026. The Central Bank noted that these figures may include other remittances, including those received following Cyclone Ditwah.

Sri Lanka’s external current account recorded a deficit of US$148.7 million in June, marking the third consecutive monthly deficit. The cumulative current account deficit reached US$245.4 million during the first half of 2026, compared with a surplus of US$1.44 billion during the same period last year.

Foreign investment in government securities recorded a net inflow of US$30.2 million in June. However, the market recorded a cumulative net outflow of US$21.8 million during the first six months of the year.

Foreign investment in the Colombo Stock Exchange, including primary and secondary market transactions, recorded a net outflow of US$0.4 million in June. The cumulative net outflow from the stock market stood at US$101.1 million.

Sri Lanka’s gross official reserves stood at US$6.5 billion at the end of June, providing import coverage of approximately 3.2 months. The figure includes the swap facility with the People’s Bank of China.

The Central Bank said reserves remained at this level despite significant foreign debt-service payments.

By the end of July, the Sri Lankan rupee had depreciated by 7.8% against the US dollar during 2026. The exchange rate stood at Rs. 336.05 per US dollar, compared with Rs. 309.99 at the end of 2025.

However, the Central Bank said the pace of depreciation had slowed and the rupee had become less volatile following recently introduced monetary, fiscal and macroprudential policy measures.