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. However, the financial account was also strengthened with the receipt of proceeds from the syndicated loan facility in March 2020.

Headline inflation as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2013=100) declined to 4.0 per cent in May 2020 from 5.2 per cent in April 2020. This was solely driven by the statistical effect of the high base prevailed in May 2019. Food inflation (Y-o-Y) declined to 9.9 per cent in May 2020 from 13.2 per cent in April 2020. Further, Non-food inflation (Y-o-Y) also declined to 1.6 per cent in May 2020 from 2.1 per cent in April 2020.