Muted Government Spending and Rising Private Credit Drive External Sector Recovery
Sri Lanka has recorded a current account surplus of US$191 million in May 2025, bringing the total surplus for the first five months of the year to US$1.3 billion, according to provisional data released by the Central Bank.
The positive current account balance reflects subdued government capital expenditure, which has reduced domestic investments and imports. These typically rely on either internally sourced capital or financial account inflows. At the same time, private sector credit is showing signs of recovery, contributing to a more balanced economic landscape.
A current account surplus generally corresponds to a financial account deficit (with adjustments for errors and omissions), providing the economy with room to repay debt and build foreign reserves. This is often done either by the government or through the banking sector.
To facilitate reserve accumulation and ensure smooth outward payments, it is crucial for the central bank to maintain a non-inflationary monetary policy. Injecting excess liquidity into the economy can lead to forex shortages, a challenge known among economists—especially Mercantilists—as the “transfer problem.”
The Central Bank has also revised previous monthly figures for the current account balance. The March surplus was adjusted to US$104 million from US$130 million, February to US$361 million from US$359 million, and January to US$473 million from US$459 million.