External sector holds surplus in March

​Sri Lanka’s external sector is holding its ground for now, but the cracks are widening beneath the surface, as surging fuel imports and a sharp reversal in tourism begin to erode the country’s external buffers.

​“The external current account recorded a marginal surplus in March 2026, mainly supported by higher workers’ remittances and a lower primary income deficit, despite a widening of the trade deficit and a moderation in the services surplus compared to a year earlier,” the Central Bank of Sri Lanka (CBSL) said in its latest external sector update.

​The current account surplus stood at US$ 44.6 million in March, bringing the cumulative surplus for the first quarter to US$ 531 million. However, the headline figure belies a deeper shift in external dynamics, with the trade deficit expanding rapidly and traditional inflows losing momentum.

​The merchandise trade deficit nearly doubled year-on-year to US$ 879.7 million in March, as import growth, up 30.3 percent, far outpaced export expansion. The surge was driven in large part by fuel imports, which jumped 74.7 percent to US$ 630 million amid elevated global prices linked to the Middle East conflict.

​“The merchandise trade deficit widened in March 2026, reflecting stronger growth in imports relative to exports,” the CBSL noted. The first quarter deficit widened sharply to US$ 2.3 billion from US$ 1.5 billion a year earlier. ​Import demand also showed signs of broadening, with vehicle imports reaching US$ 195 million in March and US$ 613 million for the quarter, indicating a gradual return of consumption and investment-led inflows.

​Meanwhile, the services account lost momentum, with the surplus contracting 42.4 percent year-on-year to US$ 227 million in March. The decline was led by a sharp fall in tourism, as arrivals dropped 19.8 percent to 183,979, while earnings fell to US$ 224 million. ​Cumulatively, tourism earnings declined 15 percent to US$ 954 million in the first quarter, underscoring the sector’s sensitivity to geopolitical disruptions, particularly the ongoing Middle East conflict. ​Workers’ remittances remained the strongest pillar of external stability, rising 17.5 percent year-on-year to US$ 815 million in March and recording a robust 26.5 percent growth for the quarter. These inflows continued to provide a critical buffer against the widening trade gap and weakening services earnings.  (SAA)