Sri Lanka’s fragile debt market is under renewed pressure as foreign investors pulled out for a second consecutive week, spooked by escalating global uncertainty following U.S. President Donald Trump’s latest tariff moves.
According to data released by the Central Bank, foreign investors sold 1.46 billion rupees worth of government securities in the week ending April 16—approximately $4.87 million at the current exchange rate of 300 rupees to the dollar. This follows an even sharper outflow of 8.67 billion rupees the week prior, reflecting growing risk aversion amid fears of a global trade war.
Market analysts attribute the outflows to rising investor anxiety following President Trump’s decision to impose sweeping reciprocal tariffs, including a 245 percent duty on Chinese goods. China’s swift retaliation has only deepened market jitters, pushing global capital into traditional safe havens like gold, while riskier emerging markets such as Sri Lanka take the hit.
The Sri Lankan rupee has edged lower since Trump’s announcement, compounding the pressure on foreign investors. Analysts warn that any prolonged trade standoff could exacerbate currency weakness and stall foreign investment recovery.
From December 26 until the recent selloffs, the island nation had recorded steady inflows totaling 28.6 billion rupees—or roughly $95.6 million—into its government securities market, fueled in part by tighter deflationary policies and curtailed imports. However, this trend now appears to be reversing.
In total, Sri Lanka attracted 29.9 billion rupees in foreign investment into treasury bonds and bills in the 15 weeks leading up to late December. As of December 26, foreign holdings in government securities stood at 69.2 billion rupees.
Despite some short-term success, the broader picture reveals volatility. The country saw 48.2 billion rupees in net outflows from foreign holdings in 2024, while data from the previous year shows a staggering 78.1 billion rupees—nearly two-thirds of total outflows—were pulled from government securities in just the first nine months of 2023.
Economic policymakers are hoping that deflationary controls and import restrictions will help stabilize capital flows, but with global tensions on the rise and markets shifting rapidly, the outlook remains uncertain.
For now, the message from global investors is clear: until the dust settles on Trump’s trade offensive, Sri Lanka’s rupee bonds may remain a casualty of international financial turbulence.
