August 31, Colombo (LNW): Sri Lanka recorded a surplus in its foreign exchange position in July 2025, with inflows from exports, services, and remittances exceeding import payments by a notable margin of 729 million US dollars, according to newly released official figures.
This comes despite a sharp increase in import activity fuelled by a resurgence in credit growth and rising consumer demand.
Merchandise exports reached an all-time high of 1.3 billion dollars in July, climbing from 1.14 billion in June, driven in part by exporters rushing to ship goods ahead of anticipated US trade tariffs. Remittances—still a major pillar of Sri Lanka’s foreign exchange earnings—also saw a strong uptick, rising to 690.5 million dollars from 635 million in the previous month.
The services sector recorded similar gains, with gross earnings, including tourism receipts, growing to 618 million dollars in July from 508 million in June. Tourism alone contributed 318.5 million dollars, reflecting a continued recovery in post-pandemic travel.
The surge in inflows, whilst welcome, has also spurred a rise in consumer and investment-related imports. Outbound travel expenses alone jumped to 81 million dollars in July, compared to 55 million dollars in the same month last year.
Meanwhile, demand for capital goods saw investment-related imports such as machinery and base metals reach 446.6 million dollars—levels not seen since early 2022, before the nation’s currency crisis unfolded.
July’s import spike is closely linked to a surge in private sector credit, which rose by 221 billion rupees in June. Economists note that whilst high domestic savings have traditionally buffered the economy, these savings often re-enter the system as investment spending—ultimately translating into increased demand for imported goods, particularly in sectors like construction, manufacturing, and transport.
The government, however, continues to face significant external debt obligations. In July, it paid 106.9 million dollars in interest alone, in addition to foreign investment dividends totalling 59.3 million dollars.
Observers have cautioned that the country’s current account position, though momentarily positive, remains under pressure due to upcoming debt repayments, including bilateral borrowings from India acquired during the height of the economic crisis.
Amidst these developments, there is growing unease amongst analysts about the central bank’s recent policy direction. The adoption of a unified policy rate and recent interest rate reductions have raised fears of overheating the credit market, potentially laying the groundwork for another financial imbalance.
Some economists argue that the central bank is again relying too heavily on signalling measures and liquidity injections without corresponding structural reforms—risking a return to unsustainable borrowing levels.
Further scrutiny has been directed at recent currency swap operations perceived as inflationary, with critics calling for legislative oversight. Drawing parallels with past economic failures in Sri Lanka, East Asia, and even the United States, several financial commentators have warned that deferring necessary monetary tightening could erode the hard-earned stability achieved in the wake of the country’s recent economic collapse.
