Trade deficit pressure grows as imports rise, tourism revenue falls, foreign investors sell bonds, and the rupee weakens in 2026.
Sri Lanka’s trade deficit has widened sharply, placing fresh pressure on the current account as foreign investors reduce bond holdings and key foreign exchange earnings come under strain.
According to the latest reports from the Central Bank of Sri Lanka, the country’s trade deficit rose to US$ 3,693 million during the four months ending in April 2026. This marks a significant increase compared to the US$ 2,257 million trade deficit recorded during the same period in 2025.
During the January-April period, export revenue recorded modest growth of 5.1%, reaching US$ 4,535 million. However, import expenditure rose by a much larger 25.2%, climbing to US$ 8,228 million during the same period.
The Central Bank also stated that Sri Lanka’s terms of trade declined by 6.4% in April 2026, as import prices increased faster than export prices. As a result, even though remittances have improved, the country’s current account has come under serious pressure.
Based on the Colombo Consumer Price Index, headline inflation was recorded at 5.5% in May 2026, remaining slightly above the Central Bank’s target level. More notably, non-food inflation stayed high at 7.8%, signalling a risk of further increases in the cost of living in the months ahead.
In an effort to control inflationary pressure, the Central Bank of Sri Lanka increased the Standing Policy Interest Rate by 100 basis points to 8.75%, effective from May 26, 2026. Following this move, commercial banks’ main lending rates and call money rates have also risen, creating additional pressure on businesses seeking loans.
The Purchasing Managers’ Index for the construction sector contracted on a monthly basis in April. Indicators for the manufacturing and services sectors also fell significantly in April compared to March, pointing to a risk of slowing economic activity.
During the reported week, the rupee value of government treasury bills and bonds held by foreign investors fell by around 5.49%. Such a withdrawal of foreign investment could place further pressure on the foreign exchange market.
Tourist arrivals declined by 2.3% during the first four months of 2026, while tourism revenue fell by 19.4% to US$ 1,111 million, putting one of Sri Lanka’s key foreign exchange earning channels at risk.
As of May 29, 2026, the rupee had depreciated by 5.4% against the US dollar so far this year.
