Sri Lanka has made significant progress in strengthening its domestic finances, recording a primary surplus and collecting nearly Rs. 5 trillion in tax revenue. However, concerns remain over the country’s external financial position, which continues to show signs of vulnerability.

Official foreign reserves stood at USD 6.76 billion by the end of April 2026, equivalent to roughly two months of imports. Economists note that the actual strength of reserves is lower after accounting for short-term external debt obligations and forward dollar sales by the Central Bank.

Under the IMF programme, the Central Bank of Sri Lanka is required to increase reserves to USD 8.9 billion by the end of 2026, limiting its ability to intervene aggressively in the foreign exchange market to defend the rupee.

Meanwhile, rising import costs are placing additional pressure on the economy. The Ceylon Petroleum Corporation has reportedly spent nearly USD 1 billion on fuel imports during the first four months of 2026, while vehicle imports also increased sharply.

Sri Lanka’s merchandise trade deficit widened significantly during the first quarter of 2026, with imports rising much faster than exports, driven largely by higher fuel and vehicle costs.

Although worker remittances and tourism earnings have shown growth, analysts caution that headline figures may not reflect the full external picture, as outward transfers and foreign profit repatriation are not deducted from the gross figures.

Global currency movements have also added pressure. With the US dollar weakening against major currencies such as the euro and pound, Sri Lanka’s import costs from Europe and the UK have increased due to the rupee’s effective link to the US dollar.

Economists warn that rupee depreciation increases the local currency cost of imports, forcing businesses to seek additional working capital and bank financing, which can contribute to inflationary pressure and expansion in money supply.

They further note that Sri Lanka’s core challenge remains structural, including weak dollar-earning capacity, heavy import dependence, large external liabilities and limited export growth.

Market analysts also point out that borrowing costs for Sri Lanka in international markets have started to rise again, increasing pressure on future external financing needs.

Experts say the country now faces a delicate balancing act between maintaining exchange rate stability, controlling inflation, supporting economic growth and rebuilding foreign reserves, while also focusing on long-term industrial and export development policies.