Sri Lanka's push to make exports the primary driver of economic growth is running into significant headwinds, as rising import costs, weakening tourism income and persistent currency depreciation continue to erode foreign exchange gains despite steady export growth.
The Sri Lanka Export Development Board recently unveiled its National Export Development Plan 2026 to 2030, targeting USD 20 billion in export earnings this year, rising to USD 36 billion by 2030.
Merchandise exports are expected to contribute USD 15.7 billion, with services generating a further USD 4.3 billion during 2026.
However, the latest external sector data from the Central Bank suggests these targets may prove difficult to achieve under current conditions.
The country's external current account recorded a deficit of USD 194 million in May, the second consecutive monthly shortfall.
This was driven largely by a widening merchandise trade deficit and a slowdown in the services surplus, even as workers' remittances continued to strengthen.
Between January and May, Sri Lanka's cumulative merchandise trade deficit widened sharply to around USD 4.7 billion, up from USD 2.7 billion during the same period last year.
Preliminary estimates suggest the gap worsened further in June, with imports remaining above USD 2 billion while exports were estimated at only USD 1.15 billion to USD 1.25 billion.
Analysts believe the monthly trade deficit approached US$900 million, pushing the cumulative mid year trade gap beyond USD 5.5 billion.
Global developments have added further pressure. Escalating tensions in the Middle East have pushed up international oil prices and freight charges, raising Sri Lanka's import bill.
Fuel import expenditure surged 112 percent year on year to US$536 million in May, driven by both higher global prices and increased import volumes.
The easing of vehicle import restrictions has also strained foreign exchange reserves, with spending on motor vehicle imports exceeding USD 1.07 billion during the first five months of the year.
Tourism, expected to provide a significant boost to foreign exchange earnings, has also underperformed.
Although tourist arrivals surpassed one million during January to May, earnings fell 11.9 percent to USD 1.36 billion compared with the same period last year.
June arrivals also declined year on year, raising concerns that visitor growth is not translating into higher spending.
Workers' remittances remain one of the few bright spots, with inflows rising 26 percent during the first five months to USD 3.9 billion, helping cushion external sector pressures.
Gross official reserves also improved to US$6.9 billion by the end of May, following disbursements under the International Monetary Fund's Extended Fund Facility.
Despite these gains, the Sri Lankan rupee weakened by 7.9 percent against the US dollar by the end of June, underlining continued external vulnerabilities.
Economists say that unless export growth accelerates alongside stronger global demand and greater diversification into higher value products, Sri Lanka's ambitious export strategy risks being undermined by an import bill that continues to outpace the country's foreign exchange earnings.
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