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. In the financial account, a net foreign investment outflow was recorded in the government securities market, while the Colombo Stock Exchange (CSE) remained closed throughout April 2020. With increased uncertainties and lack of inflows to the domestic foreign exchange market, the Sri Lanka rupee depreciated significantly against the US dollar during the first half of April 2020.

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.