Sri Lanka’s external sector performance in April 2020 was severely affected by the COVID-19 pandemic related economic interruptions. The imposition of a partial lockdown had a significant impact on Sri Lanka’s merchandise exports sector while shutting down the tourism industry in April 2020. The expenditure on merchandise imports also declined, with disruption to import related supply chains and restrictions imposed on non essential imports by the government and the Central Bank. With some migrant workers returning to the country prior to the lockdown and reduced compensation and redundancies faced by some migrant workers abroad, a significant decline was recorded in workers’ remittances during the month.

The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 16 June 2020, decided to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of licensed commercial banks (LCBs) by 200 basis points to 2.00 per cent, with effect from the reserve maintenance period that commenced on 16 June 2020. This reduction in the SRR injects around Rs. 115 billion of additional liquidity to the domestic money market, enabling the financial system to expedite credit flows to the economy, while reducing the cost of funds of LCBs. 

There has been speculation by various groups and individuals that Sri Lanka’s financial system and financial institutions are in a weak position and that the general public is at risk of losing their deposits made at those institutions.

As the regulator of both banking and non-bank financial institutions that accept public deposits in the country, the Central Bank of Sri Lanka wishes to assure the general public that it will continue to take all possible measures to ensure the safety of public deposits. Hence this statement to educate the general public on the true state of affairs about financial institutions and their stability.

The COVID-19 pandemic and the imposition of a partial lockdown in Sri Lanka in the second half of March 2020 affected external sector performance in March 2020. Breakdown in supply and demand chains along with the interruption of domestic production processes resulted in a notable decline in merchandise exports as well as merchandise imports. However, with a greater decline in the expenditure on imports compared to the decline in earnings from exports, the trade deficit narrowed over the same period in 2019. The tourism industry was severely affected with the imposition of travel restrictions globally and the closure of the Bandaranaike International Airport (BIA). Workers’ remittances declined notably in March 2020, with the return of migrant workers from affected countries as well as the reported job terminations of some workers abroad.