Foreign investment in Sri Lankan government securities has dropped to Rs. 89 billion as of mid-May, marking a slight weekly decline of Rs. 1.5 billion and reflecting ongoing investor caution amid global volatility. According to a market update from First Capital, foreign participation now represents just 4.9% of the total outstanding government securities stock.
The firm cited a mix of global headwinds—including the ongoing trade tensions between the U.S. and China, escalating conflicts in Asia, Europe, and the Middle East, and reduced global growth prospects—as key deterrents to foreign inflows into emerging markets like Sri Lanka.
“Uncertainty in global markets is prompting investors to favor developed economies offering more stable and attractive returns,” First Capital noted. It also pointed to the U.S. Federal Reserve’s recent decision to hold interest rates steady, making overseas investments relatively more appealing than those in Sri Lanka.
Year-to-date figures paint a similar picture. The net foreign outflow from government securities has reached Rs. 96 billion, despite a hefty Rs. 2.8 trillion in new issuances.
Even with encouraging domestic macroeconomic signals, Sri Lanka is feeling the squeeze of international instability. Higher yields demanded by investors at recent treasury bill auctions underscore this sentiment. The 91-day and 182-day maturities saw increased bids but only partial acceptance, while the Central Bank chose to hold rates steady on the 364-day maturity.
First Capital suggests a “wait and see” approach may be most prudent for foreign investors until there’s greater clarity in the global financial environment.