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CBSL Plans Diversified Strategies to Strengthen External Sector Amid Projected Deficit

With projections indicating historically high inflows from services trade and workers’ remittances, the Central Bank of Sri Lanka (CBSL) is positioning itself to capitalize on market opportunities through diversified strategies across various markets.

One of the key initiatives involves establishing a new investment tranche, leveraging advanced portfolio management strategies.

The CBSL also forecasts that Sri Lanka will likely record a current account deficit in 2025, driven by increased economic activity. Despite this, the Bank emphasized the need to maintain a sustainable external current account over the medium term.

In its 2025 policy agenda, the CBSL highlighted that the near completion of the government’s external debt restructuring, along with progress made under the IMF-EFF programme, has established a solid foundation for boosting investor confidence and ensuring external sector stability.

The CBSL noted that Sri Lanka has experienced a current account surplus in both 2023 and 2024. However, as economic activity accelerates, the external current account is expected to shift into deficit in 2025.

The report also projected a gradual recovery in import expenditure, partly due to the government’s planned relaxation of vehicle import restrictions in 2025.

Notably, inflows from services trade and workers’ remittances are anticipated to reach historically high levels, providing vital support to the external current account.

The Central Bank reaffirmed its commitment to enhancing external buffers and expanding reserve management activities, through strategies that include market diversification. This will involve the establishment of a new investment tranche, aimed at further strengthening the country’s financial stability.

Additionally, CBSL plans to prioritize strengthening risk mitigation measures to safeguard foreign reserve investments.

The CBSL also announced that the International Transactions Reporting System (ITRS), operational since early 2024, will be utilized to improve the quality and coverage of the financial account of the Balance of Payments, thereby facilitating better policy analysis and planning related to foreign exchange flows.

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