In June 2026, Sri Lanka’s external sector continued to experience notable strain, largely influenced by ongoing events in the Middle East. The Central Bank of Sri Lanka disclosed a current account deficit of $149 million for the month, marking the third consecutive month in which the account has been negative.
During the first half of 2026, the total current account deficit amounted to $245 million, a stark decline from the surplus recorded in the same timeframe in 2025. This downturn is primarily linked to an expanding merchandise trade deficit, which rose to $5.5 billion in the first half of this year, compared to $3.3 billion during the previous year. Although spending on motor vehicle imports dropped by 27.1% month-over-month in June, the cost of fuel imports surged by 40.2% year-over-year, though some moderation has been observed from earlier peaks in the quarter.
The tourism industry has been significantly impacted by the conflict in the Middle East, with visitor arrivals declining by 9.9% year-on-year in June 2026. Concurrently, tourism revenue fell by 10.8% for the month, totaling $151 million.
Conversely, remittances from workers have acted as a crucial support for the economy. In June, these inflows increased by 9.3% compared to the previous year, reaching $695 million, culminating in a total of $4.6 billion for the first half of 2026—a 23.2% rise from the prior year.
From a financial perspective, Gross Official Reserves were recorded at $6.5 billion at the end of June 2026. This figure encompasses the swap arrangement with the People’s Bank of China and reflects substantial external debt service payments made during that month.
The Sri Lankan rupee has been affected by these external pressures, depreciating by 7.8% against the US dollar on a year-to-date basis by the close of July 2026. However, the Central Bank has indicated that the rate of depreciation has recently slowed, and volatility has diminished following the implementation of various monetary, fiscal, and macroprudential policies.
