By: Staff Writer
May 19, Colombo (LNW): Sri Lanka is heading toward its first current account deficit in four years, a development that signals growing stress within the country’s external finances despite the post-crisis recovery seen since 2023.
Senior Central Bank officials warned Parliament this week that rising global oil prices and increasing import expenditure are expected to push foreign currency outflows above inflows during 2026, placing renewed downward pressure on the rupee and the country’s balance of payments.
Deputy Central Bank Governor Chandranath Amarasekara told the Committee on Public Finance (COPF) that Sri Lanka’s current account is likely to slip back into deficit territory after recording surpluses for three consecutive years.
“We’ve had surpluses for three years. For this year, we are expecting a small deficit in the current account,” he said before the parliamentary committee.
“So essentially, if you look at current inflows and outflows, we are expecting outflows greater than inflows this year, mainly because of what is happening in the global economy and particularly with higher oil prices.”
The warning comes as the Sri Lankan rupee has depreciated by 4.5 percent against the US dollar so far this year, reflecting increased demand for dollars to finance imports, especially fuel.
Since tensions in the Middle East intensified earlier this year, global crude oil prices have surged, sharply increasing Sri Lanka’s petroleum import bill. As a country heavily reliant on imported energy, Sri Lanka remains vulnerable to fluctuations in international commodity prices and external geopolitical developments.
The projected current account deficit marks a significant reversal from the recovery period that followed Sri Lanka’s unprecedented economic crisis in 2022. At the peak of the collapse, dwindling foreign reserves and debt repayment difficulties forced authorities to impose severe import restrictions, resulting in a current account deficit of nearly US$1.4 billion.
However, the situation improved considerably in the following years. A contraction in import demand, combined with recovering tourism earnings and stronger worker remittances, helped Sri Lanka achieve a surplus of US$1.43 billion in 2023.
That momentum continued into 2024 and 2025, with current account surpluses estimated at US$1.21 billion and US$1.72 billion respectively. Economists note, however, that much of those gains were driven by tourism receipts and remittance inflows rather than structural improvements in export competitiveness.
The emerging deficit now highlights the underlying weaknesses in Sri Lanka’s trade balance. Imports have accelerated faster than exports, while tourism growth has moderated in recent months.
The weakening rupee is expected to further increase inflationary pressure by making imported goods more expensive. Fuel, medicine, food items, and industrial inputs are likely to become costlier, affecting both consumers and businesses.
Nevertheless, some sectors may benefit from the depreciation. Export industries including apparel, tea, and rubber could see improved competitiveness in overseas markets, while remittance recipients gain more rupees when converting foreign currency earnings.
Economists caution that while currency depreciation may provide short-term export advantages, sustained external deficits and rising import costs could undermine economic stability if global energy prices remain elevated for an extended period.