Sri Lanka’s Reserve Resilience Tested by Soaring Imports and Outflows

By September 2025, reserves were reported at roughly US$ 6.24 billion, up slightly from US$ 6.11 billion in August. 

However, these levels equate to only about 3.4 months of import cover at the start of the year, leaving Sri Lanka with minimal buffer against external shocks. 

At the same time, the latest trade data highlight escalating pressure from imports. In September 2025, imports climbed to roughly US$ 2.048 billion, a sharp increase from August, while exports reached only about US$ 1.139 billion, resulting in a trade deficit of more than US$ 900 million. 

For the seven-months to July 2024, import expenditure rose by 9.1 % year-on-year, while export earnings increased only by 5.6 % illustrating the widening gap that siphons precious dollars out of the system. 

The policy challenge is stark. Sri Lanka must steadily rebuild its foreign-reserve stock while foreign-currency outflows keep mounting, driven by higher raw-material bills, intermediate parts, fuel imports, and renewed private-sector credit that increases import financing.

 According to the Central Bank of Sri Lanka (CBSL), import expenditure in December 2024 reached its highest monthly level of the year and continued to widen the merchandise trade deficit. 

Compounding this, reserve print-ups in late 2024 were partly supported by currency-swap facilities and unsterilised foreign-exchange purchases. Analyses suggest the reserve figures may be overstated by about US$ 1.4 billion due to inclusion of a RMB 10 billion China swap that does not fully satisfy international reserve-asset criteria. 

For policymakers, the task is two-fold: boost foreign-currency earning capacity through tourism, remittances and services exports and strictly manage foreign-currency outflows by limiting non-essential imports and financing. Meanwhile, the CBSL must continue prudent reserve-management practices and ensure transparency in reserve reporting. 

If successful, Sri Lanka may inch toward its target of US$ 7 billion in reserves by end-2025, as flagged by Governor Nandalal Weerasinghe, thereby improving import cover and external resilience. 

But failure to arrest the import-led out-flows and structural earnings short‐fall could re-expose the economy to reserve shocks, currency volatility and external debt servicing risk.

In sum, while the story of recovery is real, the resilience of Sri Lanka’s external-sector architecture remains precarious. Stronger foreign-income flows, tighter import management, and transparent reserve accounting will be essential if the island nation is to turn the buffer it has into a genuine safeguard.