Key Indicators Point to Economic Stability amid Global Challenges in March

• CNL Reporter
• March 15, 2025
• Weekly Economic Review
• Weekly Economic Review
• 0 Comments

WEEKLY ECONOMIC REVIEW

Sri Lanka’s economy demonstrated signs of stabilization in March 2025, marked by a narrowing trade deficit, the appreciation of the Sri Lankan rupee, and a decline in headline inflation.

The external sector performed positively, supported by robust tourism earnings and a steady inflow of workers’ remittances. These factors co

ntributed to strengthening the country’s overall economic landscape.

Exports from Sri Lanka are projected to maintain an upward trend, with the nation targeting $19 billion in export revenue for the year.

The key imports for 2025 are expected to include mineral fuels, machinery, and electrical equipment. The Sri Lanka Export Development Board (EDB) has forecast merchandise exports to contribute $14.54 billion and service exports to account for $4.16 billion in 2025.

Sri Lanka’s primary export commodities continue to be tea, women’s undergarments, knitwear, precious stones, and non-knit women’s suits.

The top destinations for Sri Lankan exports include the United States, India, Germany, the United Kingdom, and Italy. On the import side, mineral fuels and oils, nuclear reactors, and electrical machinery remain the most significant categories, with China, India, the United Arab Emirates, Malaysia, and Singapore serving as major import partners.

In the agricultural sector, tea production experienced a year-on-year increase in January 2025, benefiting from improved weather conditions and enhanced fertilizer availability. Conversely, rubber production saw a decline, and coconut production, which had been in a downward trend throughout 2024, recorded a further significant year-on-year drop in January 2025.

Global crude oil prices fluctuated between March 10th and 14th, 2025, hovering around $70 per barrel due to U.S. tariffs and OPEC+ production increases. However, later in the period, a weakening U.S. dollar and tightening supplies caused a slight upward trend in oil prices. Brent and WTI crude oil prices increased marginally by $0.24 and $0.27 per barrel, respectively.

Sri Lanka’s financial sector also exhibited changes, with reserve money increasing from the previous week due to a rise in currency circulation. By March 14th, 2025, the total outstanding market liquidity showed a surplus of Rs. 188.61 billion, compared to Rs. 166.80 billion the previous week.

The All Share Price Index (ASPI) declined by 1.58% to 15,860.44 points, while the S&P SL 20 Index dropped by 1.54% to 4,734.43 points compared to the prior week. The Sri Lankan rupee depreciated against the U.S. dollar by 1.0% during the year up to March 14th, 2025.

Tourism remained a vital sector, with earnings reaching $367.6 million in February 2025, compared to $400.7 million in January 2025 and $345.7 million in February 2024. Workers’ remittances also saw an increase, recording $548.1 million in February 2025, up from $476.2 million in February 2024. Official Reserve Assets stood at $6.09 billion, while foreign reserves totaled $6.03 billion.

The tourism sector continued to recover, with Sri Lanka generating $768.2 million in earnings in the first two months of 2025—an 11.7% increase from the $687.5 million recorded in the same period in 2024. In 2024, total tourism earnings amounted to $3.17 billion, a 53.2% jump from $2.07 billion in 2023.

Tourist arrivals also grew by 15.3% in the first 72 days of 2025, with 590,300 visitors arriving by March 13th. For 2024, total arrivals reached 2.05 million, reflecting a 38.1% increase from the previous year. Despite missing its 2024 target of 2.3 million arrivals and $5 billion in revenue, the Sri Lankan government has set an ambitious goal of welcoming 3 million tourists in 2025.

Tourism contributed nearly 5% to Sri Lanka’s GDP at its peak in 2018 before being disrupted by the Easter Sunday attacks in 2019, the COVID-19 pandemic in 2020, and the subsequent economic crisis. The Sri Lanka Tourism Development Authority estimates tourism earnings based on regular surveys.

The country’s trade balance has gradually improved, supported by growing tourism earnings and increased spending within the sector. Concurrently, demand for loans and banks’ willingness to lend have risen significantly.

A report from the Central Bank of Sri Lanka (CBSL) highlighted an increase in the banking sector’s willingness to provide loans during the fourth quarter of 2024, with expectations of further growth in early 2025. This optimism is driven by economic stabilization, stable interest rates, improved liquidity, and political stability.

The Sri Lankan economy has historically experienced fluctuations in credit trends, with lending cycles influenced by inflationary pressures and foreign exchange challenges. Economic stabilization typically follows currency crises within 18 to 24 months, allowing for monetary adjustments.

However, critics argue that these cycles often lead to a contraction in credit availability, which, in turn, results in economic slowdowns. In the past, inflation and currency depreciation have eroded consumer purchasing power, leading to business closures, particularly among SMEs. However, the rise in bad loans appears to have stabilized, suggesting improved financial sector resilience.

Sri Lanka’s Economic Indicators in March 2025

By mid-March 2025, Sri Lanka’s economy continued its stabilization trend, supported by a mix of positive and challenging developments. The foreign exchange reserves remained steady at $6.03 billion, providing a buffer against external shocks. Inflation continued to moderate, driven by controlled monetary policy and reduced supply chain disruptions.

The labor market also showed signs of gradual improvement, with increased employment opportunities in the tourism and service sectors.

Despite the depreciation of the Sri Lankan rupee, investor confidence remained relatively stable, reflecting optimism in the country’s economic trajectory. Looking ahead, Sri Lanka’s focus on export diversification, tourism growth, and financial sector resilience will be crucial for sustaining economic momentum in 2025