External current account in deficit for fourth month

• July current account records $ 142 m deficit, fourth consecutive monthly shortfall
• Jan.-July trade deficit widens to $ 6.5 b from $ 3.9 b a year earlier, with imports up 26% to $ 14.6 b
• Seven-month fuel import bill rises 60% YoY to $ 3.62 b; vehicle imports reach $ 1.5 b
• Rupee depreciates 5.5% by end-Aug.; reserves edge up to $ 6.6 b by end-July

The external current account remained in deficit for a fourth consecutive month in July, taking the cumulative shortfall to $ 387 million in the first seven months of 2026, as the merchandise trade gap widened amid higher imports linked to developments in the Middle East.

According to the Central Bank of Sri Lanka’s (CBSL) latest External Sector Performance report, the current account recorded a deficit of $ 142 million in July, following the $ 149 million deficit in June.

 The cumulative current account deficit of $ 387 million during January-July compared with a surplus in the corresponding period of 2025.

The merchandise trade deficit widened year-on-year (YoY) in July, driven by higher import expenditure and lower export earnings. The cumulative trade deficit expanded to $ 6.5 billion during the first seven months of 2026 from $ 3.9 billion in the corresponding period of 2025, an increase of about 67%.

Merchandise imports increased 19.6% YoY to $ 2.25 billion in July 2026, with the seven-month cumulative import bill up 26% YoY to $ 14.6 billion.

Fuel imports remained a source of pressure on the trade account. Monthly expenditure declined marginally to $ 453 million in July from $ 465 million in June, but was 68% higher YoY, mainly due to increased expenditure on crude oil imports.

Cumulative fuel import expenditure rose 59.9% YoY to about $ 3.62 billion during January-July.

Motor vehicle import expenditure increased to $ 241 million in July from $ 182 million in June. Cumulative expenditure on personal and commercial vehicle imports reached $ 1.5 billion during the first seven months of the year.

The CBSL said the terms of trade deteriorated YoY in July as import prices increased faster than export prices. The terms of trade also deteriorated during January-July compared with the corresponding period of 2025.

The services account recorded a surplus of $ 244 million in July, down 23% from a year earlier, although it increased 50.7% from June, mainly due to higher tourism earnings. The cumulative services surplus declined 22.4% YoY to $ 1.8 billion during January-July.

Tourist arrivals declined 1.7% YoY in July. Total arrivals during the first seven months amounted to 1,343,418, compared with 1,368,288 in the corresponding period of 2025.

Tourism earnings were estimated at $ 286 million in July, down 10.3% YoY but up 88.9% from June. Cumulative tourism earnings declined 11.5% YoY to $ 1.8 billion during January-July.

Workers’ remittances rose 11.5% YoY to $ 778 million in July, lifting cumulative inflows during the first seven months by 21.4% to $ 5.4 billion. The CBSL noted that the figure may include other remittances, including those received following Cyclone Ditwah.

Foreign investment in the Government securities market recorded a net inflow of $ 159.4 million in July, while foreign investment in the Colombo Stock Exchange, including primary and secondary market transactions, recorded a net outflow of $ 6.3 million.

Gross official reserves, including the swap facility with the People’s Bank of China, increased to $ 6.6 billion by end-July from $ 6.5 billion at end-June, supported by foreign exchange purchases by the CBSL.

By end-August, the rupee had depreciated 5.5% against the US dollar on a year-to-date (YTD) basis. The CBSL said the currency had appreciated somewhat in recent weeks, reflecting the impact of monetary, fiscal, and macroprudential policy measures.