The external sector performance continued to reflect the impact of the war in the Middle East, with the current account recording a deficit for the second consecutive month in May 2026.
The external current account recorded a deficit of US$ 194 million in May 2026, mainly driven by the widened trade deficit, a moderation in the services surplus, despite an increase in workers’ remittances compared to a year earlier. Consequently, the external current account deficit during January to May 2026 amounted to US$ 97 million.
The merchandise trade deficit widened in May 2026, as import expenditure increased at a faster pace than export earnings. Consequently, the cumulative trade deficit widened to US$ 4.7 billion during January–May 2026, compared to US$ 2.7 billion in the corresponding period of 2025.
Expenditure on fuel imports increased by 112% (year-on-year) to US$ 536 million in May 2026, driven by the increase in oil prices and volumes. However, on month-on-month basis, expenditure on fuel imports reduced by 39.5% in May 2026.
Expenditure on motor vehicle imports, including both personal and commercial vehicles, increased by 20.0% (month-on-month) to US$ 250 million in May 2026, bringing the cumulative expenditure on motor vehicle imports to US$ 1,071 million during January–May 2026.
The terms of trade deteriorated on a year-on-year basis in May 2026, as the increase in import prices outpaced the increase in export prices. Similarly, the terms of trade deteriorated during January–May 2026 compared to the corresponding period of the previous year.
The surplus in the services account recorded a contraction of 36.8%, year-on-year, to US$ 143 million in May 2026, reflecting a higher growth in services outflows compared to inflows to the services account. The cumulative surplus also contracted by 20.8% during January to May 2026 compared to the corresponding period of 2025.
Tourist arrivals recorded a year-on-year growth of 9.6% in May 2026, with total arrivals during the first five months of the year surpassing one million. Tourist earnings were estimated at US$ 156 million in May 2026, reflecting a year-on-year decline of 5.1%, and the cumulative earnings during first five months of 2026 declined by 11.9% amounting to US$ 1,360 million compared to the corresponding period of the previous year.
Workers’ remittances, which amounted to US$ 847 million in May 2026, continued the favourable trend observed in recent months. Cumulative remittances during the first five months of 2026 increased by 26.0%, year-on-year, to US$ 3.9 billion.
Foreign investments in the government securities market recorded a net outflow of US$ 60 million, while foreign investments in the Colombo Stock Exchange (CSE), including both primary and secondary market transactions, recorded a net outflow of US$ 23 million during the month of May 2026.
Gross official reserves (GOR), including the swap facility with the People’s Bank of China (PBOC), stood at US$ 6.9 billion by end May 2026, supported by the receipt of the jointly disbursed sixth and seventh tranches under the Extended Fund Facility (EFF), despite sizeable external debt service payments and net foreign exchange sales by the Central Bank.
As of end June 2026, the Sri Lanka rupee depreciated by 7.9% against the US dollar on a year-to-date basis, reflecting external sector pressures arising from the conflict in the Middle East. This depreciation is consistent with the currency depreciation trend that was observed in peer economies.
