Sri Lanka’s external sector came under pressure in September 2018. The widening deficit in the trade account and the strengthening of the US dollar, which resulted in outflows of portfolio investments, adversely impacted the balance of payments during the month. Despite earnings from exports which surpassed US dollars 1 billion for the fourth consecutive month, higher growth in import expenditure outpaced the increase in export earnings. In the financial account, foreign investments in the government securities market recorded outflows responding to the firming up of global financial markets. Meanwhile, the Colombo Stock Exchange (CSE) also witnessed some outflows of foreign investments during September. Consequently, the Sri Lankan rupee which depreciated against the US dollar by 5.3 per cent in the first eight months of the year, showed a further depreciation of 4.6 per cent in September, reflecting the pressure on the domestic foreign exchange market. These developments necessitated intervention by the Central Bank to curtail excessive volatility in the exchange rate. The country’s gross official reserves stood at US dollars 7.2 billion at end September 2018 which was equivalent to 3.8 months of imports.

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