Sri Lanka’s external current account could flip into deficit in 2025 on rising imports

• Sri Lanka recorded back-to-back years of current account surpluses on low imports
• Recovering economy & re-opening vehicle imports could propel imports
• But stronger inflows from trade services, tourism & remittances could keep deficit in check  

Sri Lanka might not be able to extend its streak of surpluses in the current account of the Balance of Payment seen in the last two years in 2025. 

This is due to rising imports in tandem with the fast recovering economy although the adverse effects could be blunted by the stronger inflows from trade in services, the robust worker remittances and rising tourism inflows, which closed last year at multi-year high levels.

Sri Lanka was able to record two back-to-back years of external current account surplus in 2023 and 2024 due in large part to the sub-optimal imports which was possible from tight monetary and fiscal policies which together strangled the economy and also due to restrictions on certain imports.

But as the economy is seen getting unshackled by the loosening monetary policy, the imports were seen rising last year while any remaining restrictions on imports such as on vehicles are going to go away, the authorities expect that repeating the last two year’s record of back-to-back surpluses in the current account might not be possible in the current year.  

“Sri Lanka has been able to record a current account surplus continuously for two years, in 2023 and 2024. However, as economic activity picks up, the external current account is likely to record a deficit in 2025”, the Central Bank said in their annual policy statement for 2025 and beyond unveiled recently.
“A gradual recovery in import expenditure is expected, particularly in the context of the planned relaxation of vehicle import restrictions in 2025 by the government,” it added.

Sri Lanka recorded a current account of the balance of payment surplus of US$ 1,559.0 million or 1.8 percent of the Gross Domestic Product in 2023 and it is on course to repeat the record in 2024.

But the pressures were seen mounting from the side of the imports, although they are unlikely to threaten the gains made in the external sector and thereby the economy.  

This is because the trade services have put in a better showing in 2024 while the remittances and tourism inflows have done extremely better, reaching multi-year high levels of inflows.

External current account balance is the trade balance plus net trade services balance which includes tourism inflows plus worker remittances.

Trade services are mainly sea transport services, computer and IT/BPO related services, air transport services, technical, trade related, and other business services, construction services, and professional and management consultancy services.

According to the available data, during the eleven months in 2024, net trade services inflows recorded US$ 3,285.2 million, up 7.7 percent from the same period in 2023.

This is in comparison to the negative trade balance from the merchandise exports and imports of US$ 5,246.7 million in the same period, which was up from US$ 4,413.6 million in the corresponding period in 2023. This was mainly due to the faster increase in imports than the exports.

The first eleven month data showed the average monthly imports of US$ 1,537.9 million in 2024 compared to US$ 1,392.9 million in 2023 in the same period, reflecting a notable increase. The monthly imports have the ability to further go up in 2025 as the economy is increasingly becoming normalized, barring the incremental rise from vehicle imports from February.

Meanwhile, Sri Lanka closed 2024 with US$ 6,575.4 million in worker remittances, up 10.1 percent from 2023 and the highest since 2020, providing the much needed strength to the current account.

With the expected US$ 5.0 billion income from tourism trade in 2025 and the expected resilience in both merchandise and services exports, Sri Lanka’s current account is unlikely to record an unsustainable balance, despite it could flip into a deficit in 2025.

“ …. the external current account will be supported by inflows from the services trade and workers’ remittances, which together are expected to reach historically high levels”, the Central Bank added.