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. With increased net inflows to the domestic foreign exchange market, the Central Bank was able to absorb foreign exchange during the month to build up gross official reserves. The Sri Lankan rupee, which demonstrated some volatility in mid August, stabilised towards the end of the month.

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