Sri Lanka forex inflows declined to 2.3 billion dollars in September, while rising imports tightened the external balance. The widening gap between earnings and expenditure highlights renewed pressure on the country’s foreign reserves.
Sri Lanka forex inflows slow while import costs surge sharply in September
Sri Lanka forex inflows totaled 2,337 million US dollars in September 2025, falling from 2,521 million dollars recorded in August, according to official data. During the same period, merchandise imports surged to 2,048 million dollars, increasing by more than 300 million dollars. As a result, the excess of gross current inflows over imports narrowed to just 289 million dollars, compared to around 600 million dollars in previous months. This shift indicates growing strain on the nation’s external position despite consistent inflows of remittances, tourism revenue and exports.
Rising import expenditure contributed significantly to the pressure. Personal vehicle imports climbed to 227.5 million dollars in September, up from 198.9 million dollars in August. Fuel imports also saw a substantial increase, rising to 440 million dollars from 255 million dollars a month earlier. Analysts attribute this to higher crude oil imports combined with an increase in refined petroleum purchases, which added to Sri Lanka’s overall import bill. Historically, imports tend to move in line with Sri Lanka forex inflows, reflecting the economy’s dependence on export earnings and remittances to facilitate external payments.
Imports without matching rupee-based earnings typically require credit. When banks extend such credit for consumer goods like vehicles, it can crowd out other lending activities unless liquidity is created by the central bank. However, inflationary open market operations have been suspended in recent months, creating a tight liquidity environment with a functioning interbank market that balances funding pressures among financial institutions. Despite this restraint, the central bank can still stimulate lending through buy-sell forex swaps, effectively injecting new money into the system to support credit for imports beyond the level of Sri Lanka forex inflows.
Concerns have also emerged around the use of fiscal buffers. Past experiences show that using buffer strategies during periods of falling interest rates contributed to currency pressures, particularly during 2015 and 2016. When state banks deposit funds from these buffers into the central bank, the liquidity often re-enters the financial system through maturing Treasury bills or bonds that are not rolled over, potentially easing conditions temporarily. Analysts warn that if such liquidity is not withdrawn through interventions, it could lead to reserve depletion or currency depreciation.
The Ceylon Petroleum Corporation has previously relied on suppliers’ credit to import fuel during periods of forex shortages, especially when current account deficits were aggravated by inflationary policies and flexible exchange rate regimes. These situations have historically highlighted the risks of mismatched foreign inflows and import commitments.
With Sri Lanka forex inflows moderating and import costs rising, policymakers face renewed pressure to balance external finances while maintaining monetary stability. Ensuring disciplined fiscal management and cautious credit expansion will be crucial to preserving currency stability and reserve strength in the coming months.