Sri Lanka’s trade deficit expanded amid rising vehicle imports and sluggish export growth, signalling challenges for economic stability in the region.
Sri Lanka’s trade deficit widened to $997.2 million in December 2025 as imports surged 12% to $2,155.2 million, outpacing a 5.1% rise in exports to $1,158 million. The Central Bank of Sri Lanka released the data on Friday, January 31, 2026, highlighting vehicle purchases as a key driver.
This widening Sri Lanka trade deficit reflects ongoing pressures on the island nation’s external accounts despite a record year for exports. In South Asia, where trade imbalances affect currency stability and growth, Sri Lanka’s figures underscore vulnerabilities tied to import dependency and global price fluctuations. Neighbouring economies like India and Pakistan watch these trends closely, as they influence regional supply chains and investment flows.
Sri Lanka Imports December Drive Deficit Growth
Imports in December 2025 reached $2,155 million, marking a 12% increase from the previous year. Vehicle imports played a significant role, totalling $301 million for the month alone. This brought the cumulative vehicle imports for 2025 to $2,047 million, according to Central Bank data.
The surge in Sri Lanka imports December stemmed from higher demand for consumer and intermediate goods. Major import sources included China, India, and the United Arab Emirates. Fuel and machinery also contributed, though vehicle purchases stood out amid post-cyclone recovery efforts following Cyclone Ditwah in late 2025.
Department of Census and Statistics records align with this, showing overall import expenditure rising amid economic rebound. The terms of trade deteriorated slightly, with export prices falling faster than import prices, exacerbating the imbalance.
Sri Lanka Exports 2025 Hit Historic High
Exports climbed to $1,158 million in December 2025, up 5.1% year-on-year. For the full year, Sri Lanka exports 2025 achieved a record $17,252 million in merchandise, based on Sri Lanka Customs data. This growth of 5.6% reflected gains in apparel, tea, and rubber sectors.
Key export destinations remained the United States, India, and the United Kingdom. Total exports including services reached $20.6 billion in 2025, up 4.9%, supported by 6.3% growth in goods and 2.3% in services. Workers’ remittances hit a historic $8.0 billion, while tourism earnings added $309 million in December.
Despite these positives, the slower pace of export growth compared to imports widened the annual Sri Lanka trade deficit to about $7.9 billion in 2025, up from 2024. This marks a setback in Sri Lanka economy news, as the nation navigates recovery from prior financial crises.
Broader Economic Context
Sri Lanka’s external sector showed mixed signals. The current account recorded a marginal surplus in December 2025, contributing to a provisional $1.7 billion surplus for the year. This offset some trade pressures through strong remittances and tourism inflows.
Inflation held at 2.1% in December 2025, per Colombo Consumer Price Index data. However, food prices rose due to Cyclone Ditwah disruptions and festive demand. Core inflation edged up, signalling potential pressures ahead.
The economy grew 5.0% in the first nine months of 2025, with resilience despite cyclone impacts. Private sector credit expanded, driven by vehicle imports and rebuilding activities. Gross official reserves stood at $6.8 billion by year-end, bolstered by multilateral inflows and Central Bank purchases.
In Sri Lanka economy news, the Overnight Policy Rate remained at 7.75% as of January 2026, aiming to steer inflation towards a 5% target. The Sri Lanka rupee depreciated 5.6% against the US dollar in 2025 but stabilised early in 2026.
Challenges And Regional Implications
The persistent Sri Lanka trade deficit raises concerns for fiscal sustainability. Vehicle imports, while boosting mobility, strain foreign exchange reserves. Analysts note that import curbs lifted in prior years fuelled this trend, but export diversification lags.
In South Asia, Sri Lanka’s situation mirrors broader issues like energy import reliance and commodity price volatility. India, a top trading partner, supplied key inputs while absorbing exports. Collaborative efforts under regional pacts could mitigate imbalances.
Government data from the Central Bank indicates no immediate policy shifts, but monitoring continues. Sri Lanka imports December figures suggest sustained demand, yet export competitiveness needs enhancement through reforms.
Background
Sri Lanka emerged from a 2022 economic crisis with IMF support, stabilising finances. The 2025 trade performance builds on that, with exports rebounding from pandemic lows. However, the $7.9 billion annual deficit highlights incomplete recovery, as imports outstripped export gains.
Historical data from the Department of Census and Statistics shows trade deficits averaging over $5 billion annually in recent years. Vehicle imports resumed fully in 2024 after restrictions, leading to the 2025 surge.
What’s Next
Policymakers may focus on boosting Sri Lanka exports 2025 momentum into 2026 through incentives for apparel and gems. Import management could curb non-essential inflows. The Sri Lanka trade deficit trajectory depends on global demand and domestic reforms, with projections for moderation if remittances and tourism sustain growth.
Published in SouthAsianDesk, February 1st, 2026
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