Sri Lanka’s BOP deficit falls in 2022 from all-time high in 2021

• BOP deficit reported at US$ 2.8bn compared to US$ 3.9bn in 2021 as trade deficit narrowed sharply amid debt standstill 

 Sri Lanka’s overall deficit in the balance of payment (BOP) fell substantially from the highest ever levels reached in 2021, which triggered the economic meltdown last year after the country ran out its foreign currency reserves. 

The data for 2022 showed that the country ended the year with a BOP deficit of US$ 2,773 million significantly down from the US$ 3,967 million reached in 2021 when imports hit an all-time high of US$ 20.6 billion, causing a record trade deficit in that year.

However, as the country applied brakes on imports via a package of tight policies and direct intervention banning certain imports deemed non-essential, imports fell by 11.4 percent to US$ 18.3 billion, narrowing the deficit in the trade account to US$ 5.2 billion, a 12-month low. 

However, the current account showed weakness compared to 2021, predominantly due to the steep loss of remittance income in 2022 after Sri Lankan migrants chose grey channels to repatriate their earnings over the official banking channels. 

But, towards the year end the remittances received from official channels showed signs of improvement signaling continued momentum in the country’s single largest foreign income source. 

Meanwhile, tourism trade showed signs of strong recovery towards the year end with cumulative earnings surpassing US$ 1.1 billion, the highest in three years. 
The arrivals for January surpassed 102,000 signalling a strong recovery, and could even exceed the arrivals targets by the year end due to pent up global travel demand and China’s reopening after ending COVID controls. 

Another most notable factor which helped the country to narrow its BOP deficit was the debt standstill, which helped to suspend outflow of at least US$ 6.0 billion in foreign currency. 
Sri Lanka entered 2022 with a total foreign currency liability of US$ 6.7 billion and even settled a US$ 500 million sovereign bond matured in January that year. However, Sri Lanka announced a debt standstill on April 12 after blowing almost all of its foreign reserves. 

In the meantime, the portfolio inflows received by government securities and the Colombo Stock Exchange also helped the BOP in 2022, though to a lesser degree. 

Along with the developments seen at present in the areas of remittances, tourism and exports supported by fresh inflows that could trigger after a much anticipated IMF bailout package followed by the debt moratorium likely to be received from bilateral lenders, Sri Lanka is poised to further improve its BOP in 2023.