Sri Lanka records lowest trade deficit in thirteen years in 2023

• Full year deficit estimated at US$ 4.9 bn for 2023 compared to US$ 5.19 bn in 2022

The trade deficit or the negative balance resulting from trading merchandise goods between Sri Lanka and the rest of the world is estimated to have touched the lowest since 2010 due to sharply lower imports last year.
According to the provisional data displayed by the Central Bank last week, Sri Lanka has exported goods valued at US$ 11.9 billion in the whole of 2023 while it has imported goods worth US$ 16.8 billion resulting in a deficit of US$ 4.9 billion in the trade account of the balance of payment in 2023.

This is in comparison to the US$ 5.19 billion deficit in 2022 and the US$ 8.14 billion deficit recorded in 2021, which was among many reasons for the economic predicament that followed in 2022.
While the restrictions on imports first began in 2020 at the onset of the pandemic to preserve foreign currency in the wake of the loss of large-scale inflows from areas like tourism, such controls became more intensified in the second half of 2021.

This was the time when the country first started to feel the effects of the thinning foreign currency buffers by way of shortages in key commodities such as milk powder and the like which gave rise to an increase in their prices, due to big-ticket foreign loan repayments and higher imports amid rising global commodities prices led by oil put a severe strain on the balance of payment.

In 2021, Sri Lanka recorded an import bill of US$ 20.64 billion before it came down to US$ 18.29 billion in the following year due to a combination of policies aimed at suppressing imports to preserve the limited foreign currency.
For instance, the officials brought in a slew of monetary, fiscal, and exchange policies aimed at containing demand in the economy, and thereby the demand for imports came in much lower in 2023 when their full effects were working their way through the economy.

However, as the economy is recovering from these policies as interest rates ease and the sentiments improve from their lowest levels, the officials expect a higher import bill and potentially a slightly higher trade deficit in 2024 which probably would be able to be offset by the strengthening services and current account inflows from tourism, remittances and other trade in services exports.