Record Remittances, IMF Funding and FDI Growth Contrasted by Sharp Rise in Balance of Payments Discrepancy
COLOMBO — A significant statistical anomaly disclosed in the latest Central Bank of Sri Lanka (CBSL) Annual Economic Review 2025 has drawn attention from economists and financial analysts, after the country’s “Net Errors and Omissions” (NEO) item widened sharply to USD 808 million in 2025, more than triple the USD 254 million recorded in 2024.
The figure appears in Table 1.13 (Financial Account) on page 48 of the CBSL report and represents one of the largest negative errors-and-omissions balances reported in recent years.
While the entry is often treated as a technical balancing adjustment within Balance of Payments (BOP) accounting, the scale of the deterioration has prompted questions about whether significant foreign exchange movements may not have been fully captured by official statistics.
What Is “Net Errors and Omissions”?
In BOP accounting, all transactions between Sri Lanka and the rest of the world should theoretically balance. When recorded inflows and outflows fail to reconcile perfectly, statisticians use a balancing item known as Net Errors and Omissions.
The category may reflect:
- Timing differences in recording transactions;
- Data collection and reporting limitations;
- Trade misinvoicing;
- Under-reporting or over-reporting of external transactions;
- Informal foreign exchange flows;
- Unrecorded capital movements; and
- Valuation or settlement timing differences.
Small discrepancies are common in all economies. However, large and persistent deviations often attract scrutiny because they may indicate hidden capital movements or weaknesses in data capture.
Why the 2025 Figure Is Significant
According to the CBSL data, Sri Lanka recorded a negative NEO of USD 808 million in 2025, compared with negative USD 254 million in 2024.
A negative figure generally suggests that more foreign exchange appears to have left the economy than can be fully explained by transactions recorded elsewhere in the Balance of Payments.
The increase occurred during a year characterized by:
- Continued IMF-supported economic reforms;
- External debt restructuring;
- Gradual relaxation of foreign exchange restrictions;
- Recovery in foreign investment activity; and
- Record growth in worker remittances.
These developments can create statistical complexities and increase the likelihood of reporting mismatches.
Record Remittances May Be Part of the Story
One possible explanation lies in the extraordinary growth of worker remittances.
The CBSL reports that remittance inflows increased by 22.8 percent, reaching a historic high of USD 8.1 billion in 2025, compared with USD 6.6 billion in 2024.
Following the stabilization of the exchange rate and the disappearance of large gaps between official and informal market rates, many overseas workers who previously used informal transfer channels may have returned to formal banking systems.
However, economists note that distinguishing genuine remittance flows from other foreign currency movements can be challenging. Timing differences, classification issues, and shifts from informal to formal channels can all contribute to statistical discrepancies.
Concerns Over Unrecorded Capital Outflows
Another possibility is the existence of foreign exchange outflows that were not fully captured within official financial account statistics.
Such movements could potentially arise from:
- Under-invoicing of exports;
- Over-invoicing of imports;
- Retention of export earnings abroad;
- Overseas asset accumulation by residents; or
- Other unofficial cross-border capital transfers.
Although there is no evidence in the CBSL report itself that such activities occurred on a large scale, negative NEO figures are often viewed internationally as a signal warranting further investigation.
Debt Restructuring May Have Distorted Reporting
Sri Lanka’s ongoing external debt restructuring process may also have contributed to statistical mismatches.
Complex accounting treatments involving:
- Accrued but unpaid interest;
- Recognition of restructured liabilities;
- Valuation adjustments; and
- Delayed recording of settlements
can temporarily create discrepancies between the current account, financial account and reserve asset calculations.
Banking Sector Transactions Could Be a Factor
Analysts also point to the possibility that movements in commercial banks’ foreign assets and liabilities may not always be synchronised perfectly across reporting categories.
Adjustments to overseas liquidity positions, Nostro accounts and foreign asset holdings can sometimes generate temporary imbalances that subsequently appear within the NEO category.
A Striking Reserve Accumulation Gap
One aspect that stands out is the relationship between the NEO figure and reserve accumulation.
The CBSL reports that official reserve assets increased by approximately USD 618 million in 2025, while the NEO item recorded a negative USD 808 million.
This occurred despite:
- Record worker remittances;
- IMF disbursements under the Extended Fund Facility;
- Proceeds from the IMF Rapid Financing Instrument;
- Multilateral financing from institutions such as the Asian Development Bank; and
- Improved foreign direct investment inflows.
The contrast suggests that a substantial portion of foreign exchange inflows did not translate directly into reserve accumulation, a pattern often reflected through the errors-and-omissions line.
An Issue Likely to Draw Further Scrutiny
While the NEO figure does not by itself prove the existence of unrecorded capital flight or reporting inaccuracies, its size is unusual by Sri Lankan standards and is likely to attract close attention from policymakers, the Central Bank, the IMF and market analysts.
As Sri Lanka continues its economic recovery and external sector reforms, understanding the source of this USD 808 million discrepancy may become increasingly important for assessing the true strength of the country’s balance of payments position and the sustainability of reserve accumulation.
For now, the unusually large negative NEO figure remains one of the most intriguing and least explained entries in Sri Lanka’s 2025 external sector accounts.
