In May 2024, Sri Lanka’s foreign exchange earnings from exports, remittances, and gross services amounted to $2,016 million, surpassing imports of $1,404 million by $611 million, according to official data.
The breakdown of these earnings includes $1,011 million from exports, $460.1 million from remittances, and $460.1 million from gross services inflows, which include tourism. After accounting for outward services such as tourism and transport amounting to $229.8 million, the net services account surplus stood at $230.3 million.
The total inflows from exports, remittances, and net services reached $1,786 million, exceeding merchandise imports by $318.4 million.
When individuals receive money from tourism or remittances, they often spend it on imports like food and fuel, potentially leading to a trade deficit.
Government borrowing for infrastructure projects such as roads and airports often results in imports of cement and steel. Similarly, private credit drives imports as savings are converted into investments in buildings, vehicles, and machinery.
Currently, there is no pressure on the currency since the balance of payments is not in deficit. Sri Lanka recorded a balance of payments surplus of $1,364 million up to May 2024, slightly lower than the $1,597 million in 2023.
Currency pressure arises when money is printed under flexible inflation targeting or inflationary policies aimed at potential output. This monetary instability is often blamed on deficits or imports, although analysts argue that a banking system cannot distinguish between private and official credit.
When central banks engage in reserve collecting without a clean float, currencies can collapse, governments can face unrest, and countries may default.
Although Sri Lanka is currently following deflationary policies, the rupee is under some pressure due to previous excess liquidity from dollar purchases, which affects the exchange rate when not properly managed.
