In February 2024, Sri Lanka experienced a significant widening of its trade deficit, which surged by 817 percent to $319 million compared to $39 million previously. This was accompanied by a notable 35 percent increase in imports, while merchandise exports saw a moderate rise of 7.9 percent to $1.059 billion. Over the two-month period leading up to February, exports increased by 3.6 percent to $2.03 billion, while imports grew by 18.2 percent to $2.89 billion, resulting in a widened trade deficit of 77 percent to $860 million. Concurrently, the Sri Lankan rupee appreciated against the US dollar, reaching 310 to the dollar by the end of February, attributed to deflationary monetary policies enacted by the central bank.

In Sri Lanka, there exists a strong Mercantilist belief linking trade deficits and imports to currency weakness and monetary instability, with emphasis placed on domestic central bank operations to address these issues. The service account showed a net inflow of $400 million, primarily driven by estimated tourism earnings of $346 million. Remittances amounted to $476 million through official channels. Sri Lanka has been accumulating reserves while also repaying debt to multilateral and Indian creditors, particularly as other bilateral projects have been halted. However, detailed financial account data was not provided. Additionally, certain fuel settlements have been delayed. Despite these challenges, the overall balance of payments in the first two months of 2024 remained positive at $247 million amidst the implementation of deflationary policies.

Sri Lanka trade deficit up 77-pct to Feb, imports surge, rupee appreciates | Economy Next