By: Staff Writer
July 30, Colombo (LNW): Sri Lanka’s impressive Customs revenue performance and record export growth have created an optimistic picture of the country’s external sector in 2026. However, a closer examination of trade data reveals a more complicated reality: while exports are expanding at a healthy pace, surging imports particularly fuel and vehicles continue to widen the merchandise trade deficit, leaving policymakers with difficult choices for the remainder of the year.
The country’s combined merchandise and services exports crossed the US$9 billion mark during the first six months of 2026, reaching US$9.01 billion an 8 percent increase over the corresponding period last year. Merchandise exports generated US$7.07 billion, rising 8.95 percent, supported by a recovery in apparel shipments, gems and jewellery, tea and other agricultural exports. Services exports contributed a further US$1.94 billion, reflecting steady growth in tourism, information technology and maritime services.
Despite these gains, Sri Lanka’s trade balance remains firmly in deficit.
Official data show the merchandise trade deficit widened to approximately US$4.66 billion during the first five months of the year as import expenditure significantly outpaced export earnings. Imports accelerated by more than 45 percent during the period, eroding much of the benefit generated by the export sector’s recovery.
Two factors account for most of the increase.
The first is fuel. Higher international crude oil prices, combined with increased domestic demand from recovering industries and electricity generation, pushed the country’s fuel import bill sharply higher. Officials estimate fuel expenditure rose by more than 100 percent compared with the previous year, placing renewed pressure on foreign exchange outflows.
The second is the reopening of vehicle imports.
After years of restrictions imposed during the economic crisis, pent-up demand triggered a wave of vehicle imports during the early months of 2026. While this initially boosted Customs revenue through import duties and taxes, it also increased pressure on foreign reserves, prompting the government to revise its policy.
Authorities responded by restructuring motor vehicle duties and introducing a 50 percent Customs surcharge in May to slow import demand. The measures were designed to reduce foreign exchange outflows while maintaining fiscal stability.
The policy shift presents a mixed outlook for Customs during the second half of the year. Vehicle taxation generated an estimated Rs. 870 billion in revenue in 2025, making it one of the department’s largest income sources. With higher taxes expected to reduce import volumes, vehicle-related revenue is forecast to decline substantially compared with last year.
However Customs officials remain confident of exceeding the department’s annual revenue target of Rs. 2,207 billion. Having already achieved around 73 percent of the goal before the end of July, strong collections from industrial machinery, manufacturing inputs, consumer goods and improved enforcement are expected to offset much of the anticipated decline in vehicle duties.
The broader challenge for policymakers is maintaining the delicate balance between raising government revenue and safeguarding external stability. Excessive vehicle imports can quickly weaken foreign exchange reserves,
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