Official data shows that Sri Lanka will have a current account surplus of US$1.7 billion in 2025. Thus, it is clear that there has been a net outflow through the financial account due to loan repayments.

The current account surplus stood at US$45 million in December, down from US$92 million in the previous month. Generally the current account is a mirror image of the financial account, which is subject to errors and omissions.

Sri Lanka is meeting its debt obligations by repaying loans from the International Monetary Fund (IMF) itself to combat the cash crunch caused by borrowing from India following interest rate cuts in 2015 with inflationary open market operations and rate cuts in 2020.

By allowing a small number of bonds to expire, the central bank has implemented a broadly deflationary policy through coupon payments on its bonds to accumulate foreign reserves.

Also, the central bank sold dollars to finance the government as an unsterilized safety measure, allowing some current account inflows to become financial account outflows.

Analysts point out that the Treasury should directly buy dollars for debt repayments. Importers have bought US$21.4 billion in 2025, but the Treasury is struggling to get even $1 or 2 billion to avoid debt repayments and defaults, they point out. In this context, they are of the opinion that the monopoly privileges given to the Central Bank and its inflationary bias should be ended.

However, the main reason for the rupee’s depreciation in 2025 was the central bank’s liquidity-absorbing dollar sales and dollar purchases beyond the deflationary policy.

Analysts emphasize that if the liquidity resulting from these dollar purchases, which the founding governor of the central bank called “monetization of the balance of payments surplus”, is not absorbed, dollars will have to be re-issued to the market at the same rate as purchased from the public to prevent the exchange rate from depreciating.

According to central bank sources

Chitral  Jayavarna