Sri Lanka’s external sector performance remained moderate in June 2016 with a widening trade deficit and relatively low growth in workers’ remittances and tourist earnings. The trade deficit which showed gradual improvements in the first four months of the year deteriorated in May and June with weak performance in both exports and imports. Earnings from tourism recorded a low growth in June compared to previous months of the year while growth in workers’ remittances also moderated. However, inflows to the financial account elevated with the receipts of the first tranche of the IMF Extended Fund Facility (IMF-EFF) and a syndicated loan facility. As a result of these inflows to the financial account and developments in the global economy with further rate hikes by the United States Federal Reserve still to materialise, foreign investments in the government securities market rebounded. This resulted in a net inflow of foreign investments in Government securities in June 2016 compared to continuous outflows experienced during the first quarter of the year.

Both headline and core inflation, measured on a year-on-year basis, edged down in July 2016. The normalisation observed in domestic supply conditions as well as the suspension of the revisions made to certain taxes moderated consumer price inflation. However, the underlying upward trend in inflation, as reflected in annual average price changes, appears to have continued thus far during the year.