BoP remains a surplus through October despite mounting pressures

• Sri Lanka recorded a BOP surplus of US$ 1,965mn during Jan-Oct period compared to a negative BOP of US$ 2,989mn in 2022

Despite the expanding trade deficit, Sri Lanka’s Balance of Payment (BOP), reflecting the net outcome of transactions, investments, and borrowing with the rest of the world, remained positive throughout the first ten months of the year, as per the latest external sector data.
Sri Lanka recorded a BOP surplus of US$ 1,965 million in the January through October period compared to a negative BOP of US$ 2,989 million in 2022 when the economy came to a grinding halt as the country ran out of foreign currency to pay even for the essentials.

However, the Central Bank crushed the demand for imports by raising rates to historically high levels and the government banned many types of imports, unless they are essential and urgent, expanding from the pandemic era ban on vehicles.
Further, the government also suspended repayment of most foreign currency loans to bilateral and commercial creditors which are now being restructured with maturity extensions and interest rate reductions. 

This was further buttressed by the recovering inflows from remittances and the tourism trade after remaining nearly shuttered during the two years of the pandemic and muted through last year due to the economic crisis which precipitated into a full blown social and political upheaval.
The surplus in the BOP this year was recorded notwithstanding the declining merchandise exports and normalising imports which resulted in an expansion in the trade deficit. 

However, the Central Bank said they remain confident of ending the year with a surplus in the current account of the BOP for 2023 due to stronger than anticipated services inflows and worker remittances and tourism incomes, which together have more than offset the deficit in the trade account. 
For instance, in the first ten months trade deficit was recorded at US$ 4,024 million, Sri Lanka had recorded US$ 4.9 billion from remittances, US$ 1.6 billion from tourism and another US$ 1.1 billion from other services exports, making such an expectation realistic.  

However, it remains to be seen how the BOP will turn out next year when most imports, including vehicles, are relaxed in a likely recovering economy where people and businesses will raise their demand for imported goods and services amid easier access to credit. 

The outlook for exports remains grim as of now as the West is largely expecting an economic slowdown, a so-called ‘soft-landing,’ where the inflation returns to its target level of 2 percent without causing a recession.
It also remains to be seen when the debt repayments under external debt restructuring would kick in again as it could also put additional pressure on the BOP due to mounting outflows.