Sri Lanka’s foreign exchange reserves, though showing modest recovery, remain under pressure as rising import expenditure and continued foreign currency outflows strain the island’s external position.
According to Central Bank of Sri Lanka (CBSL) and international data, gross official reserves stood at US$ 6.3 billion by April 2025, slightly lower than US$ 6.47 billion recorded in October 2024. By September 2025, reserves edged up to US$ 6.24 billion, indicating some improvement but still far below sustainable levels.
These reserves cover only about 3.4 months of imports, leaving the country with little cushion against external shocks. Meanwhile, import pressures continue to intensify. In September 2025, import expenditure surged to US$ 2.048 billion, while exports were limited to US$ 1.139 billion, producing a trade deficit exceeding US$ 900 million.
During the first seven months of 2024, import spending grew 9.1% year-on-year, outpacing the 5.6% growth in exports a clear signal of widening foreign exchange leakage. Fuel imports, intermediate goods, and raw materials continue to dominate the import bill, while renewed private-sector credit growth further drives import demand.
CBSL data also show that December 2024 recorded the highest import bill of the year, widening the merchandise trade deficit even further. Part of the reserve buildup during late 2024 came from currency-swap arrangements and unsterilised foreign-exchange purchases, raising questions about the true level of usable reserves. Analysts estimate reserves could be overstated by around US$ 1.4 billion, due to the inclusion of a RMB 10 billion Chinese swap that does not meet full international reserve standards.
To stabilize the situation, policymakers face a dual challenge: boosting foreign-currency earnings through tourism, remittances, and services exports, while curbing non-essential imports and maintaining transparent reserve management. CBSL has emphasized the need for cautious reserve-building and clearer reporting to restore investor confidence.
Governor Nandalal Weerasinghe has set a target of US$ 7 billion in reserves by end-2025, a goal that depends on sustained export recovery and disciplined fiscal management. Failure to control import-driven outflows and narrow the structural foreign exchange gap could expose the economy to renewed currency volatility and external debt risks.
In essence, Sri Lanka’s reserve recovery remains a fragile balancing act. To convert its modest buffer into genuine resilience, the nation must strengthen export competitiveness, attract stable foreign inflows, and ensure transparency in managing its limited reserves.
