Sri Lanka’s external finances showed a glimmer of hope toward the end of 2025, but experts warn that the country’s balance of payments (BOP) could face renewed stress in 2026.
According to the Central Bank of Sri Lanka (CBSL), the current account returned to a small surplus of USD 81.7 million in November, reversing deficits in September and October. Yet beneath this headline figure, structural vulnerabilities rising import bills, cyclone-related expenses, and weak foreign investment—threaten long-term stability.
Year-to-date, the current account surplus narrowed to USD 1.67 billion by November, down 2.2% from a year ago. Imports, especially vehicles and machinery, surged faster than exports, pushing the trade deficit to USD 730.7 million in October, compared to USD 502 million the previous year.
Cumulative imports for the first eleven months rose 14.2% to USD 19.32 billion, while exports managed only a 6.4% increase to USD 12.4 billion. Analysts say this widening gap highlights Sri Lanka’s heavy reliance on imports, a challenge that will intensify with reconstruction needs following severe cyclone damage.
Cyclone-related spending in 2026 is expected to stretch the government’s finances further. Relief efforts, infrastructure repairs, and rebuilding projects will require importing large volumes of materials and fuel, putting additional pressure on the current account. Without significant inflows of foreign capital, this spending could reignite a BOP crisis, making the current surplus appear temporary.
Some bright spots remain. Workers’ remittances are the strongest stabilizer, posting a 20.7% increase in the first eleven months of 2025, with November recording the highest monthly inflow since 2020 at USD 673 million. Tourism earnings, while growing modestly overall, fell 7.8% in November compared to last year. Net inflows from services saw only a marginal increase, signaling that reliance on traditional revenue streams alone may not be enough to cover external obligations.
Foreign direct investment and donor support critical for long-term external financing—remain weak. Investment in government securities declined sharply, while the Colombo Stock Exchange experienced net outflows. This indicates that investor confidence is still fragile, limiting the country’s ability to fund recovery projects without drawing down reserves or taking on additional debt.
Gross official reserves were around USD 6 billion by November, supported in part by a swap arrangement with China, but debt service obligations and a 5.6% depreciation of the rupee this year underscore vulnerability. Economists warn that unless imports are controlled, exports diversified, and FDI and donor assistance revived, the current account surplus may be insufficient to absorb disaster-related and ongoing financial shocks.
In short, Sri Lanka enters 2026 at a crossroads. While the November surplus offers a momentary sigh of relief, rising cyclone-related expenditure and sluggish foreign inflows suggest that the country’s external sector could once again face pressure. Policymakers will need a careful mix of fiscal restraint, export promotion, and strategic foreign engagement to prevent a repeat of past BOP crises.
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