Sri Lanka’s external sector continued to recover in relation to many aspects during August 2020, mainly supported by an improved trade deficit and a notable increase in workers’ remittances. The trade deficit improved on a year-on-year basis, with the reduction in merchandise imports due to regulatory restrictions on the importation of non-essential goods and lower crude oil prices, despite earnings from merchandise exports recording a year-on-year decline during the month. Nevertheless, the export performance remained strong for the third consecutive month in spite of the pandemic affected global demand. Meanwhile, workers’ remittances recorded a substantial growth in August 2020, strengthening the current account. In the financial account, marginal foreign investment outflows were recorded from the government securities market, while the Colombo Stock Exchange (CSE) also recorded some foreign investment outflows during the month.

On 02 October 2020, the Central Bank of Sri Lanka successfully completed the settlement of the maturing International Sovereign Bond of US dollars 1 billion along with the due coupon payments, on behalf of the Government of Sri Lanka.

This settlement reconfirms the Government’s unwavering commitment to honour its foreign liabilities, thereby bolstering investor confidence and dispelling any concerns foreign investors may have in relation to the Government’s ability and willingness to maintain its unblemished debt servicing record. The domestic foreign exchange market has already reacted positively to this settlement and other recent positive developments in the Sri Lankan economy. With the envisaged inflows to the domestic foreign exchange market supported by proactive measures taken by the Government and the Central Bank of Sri Lanka, the market sentiment is expected to further strengthen in the period ahead.