Sri Lanka’s external current account achieved a slight surplus in March 2026, culminating in a total surplus of USD 531 million for the first quarter of the year. However, this positive outcome was overshadowed by considerable fluctuations due to the ongoing conflict in the Middle East, which has led to increased fuel prices and discouraged international tourism.
The merchandise trade deficit widened significantly, reaching USD 2.3 billion in the first quarter of 2026, compared to USD 1.5 billion during the same period last year. This increase was primarily driven by a remarkable 74.7% year-on-year rise in fuel import costs, which soared to USD 630 million in March alone, influenced by escalating global prices and higher import volumes. Additionally, imports of vehicles, including both personal and commercial types, added USD 195 million to March’s import expenditure.
The services sector, which has historically been a strong contributor to the external account, experienced a sharp decline in surplus by 42.4% in March. The Central Bank reported a 19.8% decrease in tourist arrivals, totaling 183,979 visitors, which reversed previous upward trends. This decline, attributed to the conflict in the Middle East, caused tourist revenues in March to drop to USD 224 million, with total earnings for the quarter falling by 15% compared to 2025.
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In contrast to the difficulties faced by trade and tourism, remittances from workers abroad remained a significant source of economic support. In March, remittances rose by 17.5% to USD 815 million. Cumulatively, the first quarter saw a substantial 26.5% increase in remittance inflows from Sri Lankans overseas, amounting to nearly USD 2.3 billion.
At the end of March 2026, Sri Lanka’s Gross Official Reserves were reported at USD 7.0 billion. Despite the Central Bank’s net foreign exchange purchases, the overall reserve levels declined during the month, primarily due to payments related to external debt servicing.
Furthermore, the regional instability had a negative effect on the currency. By the end of April 2026, the Sri Lankan rupee had depreciated by 2.9% against the US dollar for the year, as the ongoing conflict in the Middle East continued to pressure the external sector.
The Central Bank of Sri Lanka also indicated that the terms of trade experienced a slight deterioration during the first quarter, as the decrease in export prices outpaced the decline in import prices.
Financial Chronicle Biz English | Sri Lanka Business News.
