Sri Lanka foreign reserves fall 6.2-pct in June 2026 as the country’s official foreign exchange reserves declined despite continued dollar purchases by the Central Bank of Sri Lanka, highlighting ongoing pressures on the island’s external finances and recovery programme.
Sri Lanka foreign reserves fall 6.2-pct in June 2026 despite reserve purchases
Official data showed Sri Lanka’s gross official reserves declined 6.2 percent to US$6.45 billion at the end of June 2026, down from US$6.87 billion recorded a month earlier. The decline came even though the Central Bank of Sri Lanka remained a net buyer of foreign currency during the month, purchasing US$70.5 million on a net basis.
The central bank has maintained an aggressive reserve accumulation strategy since last year as part of broader efforts to rebuild external buffers following the country’s financial crisis. In the first six months of 2026, the monetary authority recorded net foreign exchange purchases of US$556.4 million, following net purchases of approximately US$2 billion in 2025.
However, the pace of reserve accumulation slowed significantly during recent months as stronger demand for foreign currency reduced the amount of dollars available for the central bank to purchase.
Market pressures intensified in May after Sri Lanka’s fuel import bill rose sharply due to escalating tensions in the Middle East, which pushed global energy prices higher. At the same time, demand for US dollars increased as imports of newly permitted motor vehicles gathered pace, placing additional pressure on the rupee.
The depreciation of the local currency prompted the Central Bank of Sri Lanka to increase its Overnight Policy Rate in May in an effort to stabilise market conditions and curb excessive pressure on the exchange rate.
Building foreign exchange reserves remains one of the country’s key policy priorities under the IMF Extended Fund Facility, which provides a US$3 billion financial support programme aimed at restoring macroeconomic stability, rebuilding confidence and supporting Sri Lanka’s economic recovery.
The reserve-building programme is also intended to strengthen Sri Lanka’s capacity to meet future external debt obligations. Following the successful completion of sovereign debt restructuring, repayments to international sovereign bondholders are scheduled to begin from April 2028, making adequate reserve levels increasingly important.
Although the June decline does not necessarily signal a reversal of the broader recovery trend, economists note that sustained reductions in foreign reserves could complicate Sri Lanka’s ability to meet quantitative performance targets agreed under the IMF Extended Fund Facility.
Reserve adequacy and net international reserves remain key benchmarks monitored under the IMF programme. Any prolonged weakness in reserve accumulation could affect the timing of future IMF reviews and subsequent loan disbursements, which continue to play an important role in supporting investor confidence and maintaining external financing.
The decline also underscores the delicate balance policymakers face between allowing market demand for foreign exchange to function normally while simultaneously accumulating reserves for future debt servicing requirements.
Since emerging from sovereign default through a comprehensive debt restructuring agreement, Sri Lanka has made notable progress in restoring macroeconomic stability. Inflation has moderated, tourism earnings have recovered, exports have remained resilient and fiscal reforms have improved government finances.
Nevertheless, analysts caution that external vulnerabilities have not disappeared. A combination of higher import costs, global economic uncertainty and fluctuations in capital flows could continue to influence reserve levels in the coming months.
They argue that maintaining strong export performance, attracting higher levels of foreign direct investment and encouraging sustained tourism earnings will be essential to rebuilding reserve buffers. Continued fiscal discipline and prudent monetary policy are also expected to remain central to preserving economic stability.
As Sri Lanka foreign reserves fall 6.2-pct in June 2026, policymakers are expected to continue focusing on strengthening external finances while ensuring the country remains on track to achieve the reform objectives agreed with international lenders. Sustaining reserve growth will be viewed as a critical factor in supporting long-term debt sustainability and restoring Sri Lanka’s access to global financial markets.