BOP turns positive amid tepid demand, decline in imports

Sri Lanka’s balance of payment (BOP) which was at the center of the economic crisis that hit the country last year, has finally turned positive after nearly a year of demand destruction policies adopted by the authorities to tame both inflation and imports. 
After months of deficits, the BoP first turned positive in January 2023 with a balance of US$ 211 million and it increased to US$ 317 million by the end of February reflecting the sustained nature of the surplus in the external account. 

Sri Lanka fell into crisis after two years of blowout BoP deficits which came to a head in 2021 after the deficit touched a record US$ 3,967 million when the country lost crucial foreign exchange from tourism, remittances, investments and exports amid large debt repayments. 
The deep tax cuts announced in the latter part of 2019 to stimulate the stagnating economy also contributed to the collapse as rating agencies identified the measure as ‘credit negative,’ even though there was no threat of a global pandemic at the time.

They said the tax cuts could have a negative impact on government revenue, which will put pressure on the country’s persistent budget deficit.
As a result of Sri Lanka announcing a debt standstill, the country has received a temporary reprieve roughly on US$ 6.0 billion worth of loans per annum and is currently seeing a rapid revival in tourism and remittance incomes, helping the BoP. 

At the same time, Sri Lanka also saw its trade deficit falling to US$ 449 million in the two months to February from US$ 1,636 million in the same period in 2022.