Sri Lanka Ends 2025 With Improved External Position Despite Trade Pressures

(MENAFN- Colombo Gazette) Sri Lanka closed 2025 with a cautiously improved external position, supported by persistent current account surpluses, record-high workers' remittances, and a stronger services balance, according to the Central Bank of Sri Lanka's latest external sector data.

The current account recorded a marginal surplus in December, extending a trend seen through most of the year, with the full-year balance estimated at a provisional surplus of US$1.7 billion. This marked a significant shift from the pre-crisis period of chronic deficits, driven mainly by services, remittances, and tourism inflows, even as import demand recovered.

However, pressures persisted in the merchandise trade balance. The trade deficit widened year-on-year in December and expanded to around US$7.9 billion for the full year, compared to 2024, despite export earnings reaching a historic high. Import normalisation, particularly for consumption and investment goods, continued to weigh on the trade balance.

Vehicle imports were a key contributor, reaching US$301 million in December and US$2.05 billion for 2025, reflecting relaxed import controls and pent-up domestic demand. Sri Lanka's terms of trade also deteriorated, as export prices declined more sharply than import prices, limiting gains from improved export volumes.

The services account remained a critical buffer, with the surplus rising to US$344 million in December from US$127 million a year earlier. The cumulative services surplus for 2025 increased to US$3.7 billion, supported by tourism and other service exports.

Tourist arrivals grew 15.1 percent year-on-year in 2025, surpassing the 2018 peak, but earnings rose only 1.6 percent due to lower average spending and shorter stays. Workers' remittances were the standout performer, rising 22.8 percent to over US$8.0 billion, a historic high.

External buffers improved, with gross official reserves reaching around US$6.8 billion by end-2025. In January 2026, the Sri Lankan rupee appreciated marginally by 0.2 percent against the US dollar.

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