The performance of the external sector has continued to showcase the repercussions of the ongoing conflict in the Middle East, as evidenced by the current account showing a deficit for the second consecutive month in May 2026.
In May 2026, the external current account registered a deficit of $194 million, primarily influenced by an expanding trade deficit and a decrease in the services surplus, despite a year-on-year rise in remittances from workers. As a result, the external current account deficit from January to May 2026 totaled $97 million.
The trade deficit in merchandise further widened in May 2026, with import spending growing more rapidly than earnings from exports. Consequently, the cumulative trade deficit increased to $4.7 billion for the period of January to May 2026, in contrast to $2.7 billion recorded during the same period in 2025.
During May 2026, fuel import expenses surged by 112% compared to the previous year, reaching $536 million, driven by rising oil prices and increased volumes. However, on a month-to-month basis, fuel import costs saw a significant decrease of 39.5% in May 2026.
Expenditures on motor vehicle imports, which include both personal and commercial vehicles, rose by 20% month-on-month to $250 million in May 2026. This brought the total spending on motor vehicle imports to $1,071 million from January to May 2026.
The terms of trade experienced a year-on-year decline in May 2026, as import prices rose at a faster rate than export prices. This deterioration was also observed from January to May 2026 compared to the previous year.
The services account surplus contracted by 36.8% year-on-year, totaling $143 million in May 2026, reflecting higher growth in service outflows relative to inflows. The cumulative surplus also decreased by 20.8% during the first five months of 2026 in comparison to the same timeframe in 2025.
Tourist arrivals in May 2026 saw a year-on-year increase of 9.6%, with over one million visitors recorded in the first five months of the year. However, tourist earnings were estimated at $156 million in May 2026, marking a decline of 5.1% compared to the previous year, while cumulative earnings for the first five months of 2026 dropped by 11.9%, amounting to $1,360 million relative to the same period last year.
Remittances from workers reached $847 million in May 2026, continuing a positive trend observed in recent months. Total remittances for the first five months of 2026 increased by 26% year-on-year, totaling $3.9 billion.
In terms of foreign investments, the government securities market experienced a net outflow of $60 million, while the Colombo Stock Exchange (CSE), including both primary and secondary market transactions, recorded a net outflow of $23 million in May 2026.
By the end of May 2026, gross official reserves (GOR), which include the swap arrangement with the People’s Bank of China (PBOC), stood at $6.9 billion. This figure was bolstered by the receipt of the jointly disbursed sixth and seventh tranches under the Extended Fund Facility (EFF), despite significant external debt service payments and net foreign exchange sales by the Central Bank.
As of the end of June 2026, the Sri Lankan rupee had depreciated by 7.9% against the US dollar for the year to date, reflecting the external sector pressures stemming from the conflict in the Middle East. This decline aligns with the depreciation trends seen in comparable economies.
Source: Financial Chronicle Biz English | Sri Lanka Business News.
