balance of payments Sri Lanka

1. INTRODUCTIONTO
MACRO ECONOMIC
SITUATION OF SRI LANKA
• A Decade Analysis (2012-2023)
1

2. GROUP MEMBERS
M.S.S AHAMED
BSc/2022/16A/WE/003
K.R.M.Perera
BSc/2022/16A/WE/020
S.H.D.N Senavirathna
BSc/2022-16A/MOHE/WE-014
P.L.P GIMHANI
BSc/2022-16A/MOHE/WE-005
J.M. Saifullah
BSc/2022/16A/WE/010
M.K.M.D.ALWIS
BSc/2022-16A/MOHE/WE-007
K.L.M.D.F. FERNANDO
BSc/2022/16A/WE/007
2

3. • Economic Growth
• Inflation rate
• Unemployment rate
• Introduction to BOP
• Current Account
• Services Balance
• Current Transfers
• Capital Account & Financial Account
• Foreign Direct Investment
• Portfolio Investment & Other Investment
• Reserve Assets
• Balance of Payments
• Policy Implications and Challenges
• Conclusion
3
TABLE OF CONTENT

4. • Economic growth is a term that refers to
the increase in the production of goods and
services in an economy over a period of
time.
• It is usually measured by the percentage
change in the gross domestic product
(GDP), which is the total value of all final
goods and services produced within a
country in a given year.
• Economic growth can also be measured by
other indicators, such as income per capita,
employment, productivity, or living
standards.
4
WHAT IS ECONOMIC GROWTH
ECONOMIC GROWTH

5. 5
• Sri Lanka’s GDP growth rate was 8.63% in 2012, according to the
World Bank. This was one of the highest growth rates in the
region, driven by post-war reconstruction, infrastructure
development, tourism and agriculture.
• Sri Lanka’s GDP growth rate is projected to be 3.33% in 2023,
according to Macrotrends. This is based on the assumption of a
gradual recovery from the COVID-19 pandemic, a stable political
environment, a successful debt management strategy and a
supportive external environment.
• Sri Lanka faces many challenges and uncertainties in achieving a
higher and more inclusive economic growth in 2023 and beyond,
such as addressing its debt sustainability, improving its
competitiveness, diversifying its export base, enhancing its human
capital and social protection, and mitigating the impacts of
climate change.
ECONOMIC GROWTH OF SRI LANKA
-6
-4
-2
0
2
4
6
8
10
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Economic Growth (annual %)
Economic Growth (annual %)

6. INFLATION RATE
• Inflation rate is a measure of how fast the prices of goods and
services are rising in a given period of time, usually a month or a year.
• It is calculated by comparing the changes in the consumer price
index (CPI), which is a weighted average of the prices of a basket of
goods and services that are typically purchased by households.
• A positive inflation rate means that prices are increasing, while a
negative inflation rate means that prices are decreasing.
• A high inflation rate can erode the purchasing power of money and
make it harder for people to afford basic needs.
• A low or moderate inflation rate can stimulate economic growth and
encourage spending and investment.
• Different countries have different inflation rates depending on their
economic conditions, monetary policies, exchange rates, supply and
demand factors, and other factors.
6
WHAT IS INFLATION RATE?

7. 7
• In Sri Lanka, the inflation rate is mainly calculated based on the
Consumer Price Index (CPI), which includes food items (41%) and
non-food items (59%).
• The headline inflation rate, as measured by the year-on-year
change in the National Consumer Price Index (NCPI), was 58.9% in
June 2022.
• In February 2023, the annual inflation rate in Sri Lanka was 50.6%,
down from 59.2% in December 2022.
• In November 2022, the inflation rate was 65%, down from a peak
of 73.7% in September 2022.
INFLATION RATE OF SRI LANKA
0
5
10
15
20
25
30
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Inflation Rate (annual %)
Inflation Rate (annual %)
Inflation Rate = Current year price index – previous year price index X 100
Previous year price index

8. 8
• Unemployment means the population is
condensed of whom don’t get a chance to
provide their labor. but they prefer to be
employed for any economic advantage.
• Persons available and or looking for work, who
did not work and take steps to find a job
during the last four weeks and are ready to
accept a job given a work opportunity within
the next two weeks are defined as
unemployed.
WHAT IS UNEMPLOYMENT?
UNEMPLOYMENT RATE

9. 9
• In Sri Lanka, the unemployment rate is measured by the number
of people actively looking for a job as a percentage of the labor
force.
• The unemployment rate in Sri Lanka decreased to 4.7% in the first
quarter of 2023 from 4.8% in the fourth quarter of 2022.
• In 2022, the unemployment rate increased by 1.5 percentage
points (+28.63%) to 6.7%, due to the impact of the COVID-19
pandemic on the economy and employment.
• The youth unemployment rate (age 15-24) was 23.8% in the third
quarter of 2022, unchanged from the previous quarter.
UNEMPLOYMENT RATE OF SRI LANKA
Unemployment rate = Number of Unemployed persons X 100
Labor Force
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Unemployment Rate (%)
Unemployment Rate (%)

10. BALANCE OF
PAYMENTS IN SRI
LANKA
A DECADE ANALYSIS (2012-2023)

11. INTRODUCTION
• The balance of payments (BOP) is a record of all the transactions
between a country and the rest of the world. It consists of two main
components: the current account and the capital account. The
current account reflects the trade balance, net income from abroad,
and net current transfers. The capital account reflects the net change
in ownership of foreign assets. A BOP surplus means that the country
receives more money from abroad than it spends, while a BOP deficit
means the opposite.
• In this presentation, we will analyze the trends and patterns of Sri
Lanka’s BOP over the past decade (2012-2023). We will use data from
various sources, such as the International Monetary Fund (IMF), the
World Bank, and the Central Bank of Sri Lanka. We will also discuss
the main factors that have influenced the BOP, such as commodity
prices, exchange rates, fiscal policies, external shocks, and structural
reforms. Finally, we will assess the challenges and opportunities for
Sri Lanka’s BOP in the near future.
11

12. • The current account reflects the trade balance, net income
from abroad, and net current transfers
• Sri Lanka recorded a current account deficit of USD 1.7 billion
in 2012, compared to a projected current account surplus of
USD 0.6 billion in 2023
• The improvement was mainly due to a higher surplus in
secondary income (remittances) and a lower deficit in goods
trade in 2023
• The current account deficit as a percentage of GDP declined
from 3.8 percent in 2012 to -1.9 percent in 2023
• The current account performance is influenced by global and
domestic factors such as commodity prices, exchange rates,
trade policies, competitiveness, quality standards,
infrastructure, and external shocks
12
CURRENT ACCOUNT
-3,000.00
-2,500.00
-2,000.00
-1,500.00
-1,000.00
-500.00
0.00
500.00
1,000.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Current Account (USD million)
Current Account (USD million)

13. • The services balance reflects the net income from exports and
imports of services such as travel, transport, communication,
financial, and other business services
• Sri Lanka recorded a services surplus of USD 1.8 billion in 2012,
compared to a projected services surplus of USD 2.7 billion in 2023
• The increase was mainly due to a higher surplus in travel services,
which recovered from the COVID-19 pandemic and travel
restrictions in 2023
• The services surplus as a percentage of GDP increased from 2.5
percent in 2012 to 3.9 percent in 2023
• The services balance performance is influenced by factors such as
global and domestic tourism demand, competitiveness and
diversification of service sectors, quality standards and regulations,
infrastructure and technology, and external shocks
13
SERVICES BALANCE
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Services Balance (USD million)
Services Balance (USD million)

14. • The income balance reflects the net income from investments,
compensation of employees, and other primary income
• Sri Lanka recorded an income deficit of USD 1.8 billion in 2012,
compared to a projected income deficit of USD 1.9 billion in 2023
• The deterioration was mainly due to a higher deficit in investment
income, which reflects the interest payments on external debt and
the dividends and profits on foreign direct investment
• The income deficit as a percentage of GDP increased from 2.6
percent in 2012 to 2.7 percent in 2023
• The income balance performance is influenced by factors such as
the level and composition of external debt, the profitability and
repatriation of foreign direct investment, the remuneration and
migration of workers, and the interest rate and exchange rate
movements
14
INCOME BALANCE
-3,000.00
-2,500.00
-2,000.00
-1,500.00
-1,000.00
-500.00
0.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Income Balance (USD million)
Income Balance (USD million)

15. • The current transfers have increased steadily from USD 6.8 billion
in 2012 to USD 9.5 billion in 2021, and are projected to reach USD
10.4 billion in 2023
• The current transfers as a percentage of GDP have also increased
from 9.0 percent in 2012 to 12.7 percent in 2021, and are
projected to remain at 12.7 percent in 2023
• The main component of current transfers is workers’ remittances,
which account for about 80 percent of the total. Workers’
remittances have grown from USD 5.4 billion in 2012 to USD 7.6
billion in 2021, and are projected to reach USD 8.4 billion in 2023
• The other components of current transfers are official grants and
other private transfers, which account for about 10 percent and 9
percent of the total, respectively. Official grants have increased
from USD 0.6 billion in 2012 to USD 0.9 billion in 2021, and are
projected to reach USD 1.0 billion in 2023
• Other private transfers have increased from USD 0.7 billion in 2012
to USD 0.9 billion in 2021, and are projected to remain at USD 0.9
billion in 2023
15
CURRENTTRANSFERS
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Current Transfers (USD million)
Current Transfers (USD million)

16. CAPITAL ACCOUNT & FINANCIAL ACCOUNT
CAPITAL ACCOUNT
The capital account reflects the net receipts of
capital transfers and acquisition or disposal of
non-produced, non-financial assets
Sri Lanka recorded a capital account surplus of
USD 44 million in 2012, compared to the
projected capital account surplus of USD 32
million
The capital account surplus as a percentage of
GDP decreased from 0.1 percent in 2012 to 0.0
percent in 2023
FINANCIAL ACCOUNT
The financial account reflects the net change in
ownership of foreign financial assets and
liabilities
Sri Lanka recorded a financial account surplus
of USD 1.4 billion in 2012 compared to the
financial account surplus of USD 1.0 billion in
2023
The financial account surplus as a percentage
of GDP decreased from 2.0 percent in 2012 to
1.4 percent in 2023
16
-500
0
500
1000
1500
2000
2500
3000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Capital Account & Financial Account
Capital Account (USD million)
Financial Account (USD million)

17. • Foreign direct investment (FDI) reflects the net inflows of
investment to acquire a lasting management interest in an
enterprise operating in an economy other than that of the investor.
• Sri Lanka recorded a net inflow of FDI of USD 1.0 billion in 2012,
compared to a projected net inflow of FDI of USD 0.8 billion in
2023
• The decline was mainly due to a lower net inflow of FDI in the
manufacturing, services, and infrastructure sectors in 2023
• FDI as a percentage of GDP decreased from 1.4 percent in 2012 to
1.1 percent in 2023
• FDI performance is influenced by factors such as the global and
domestic investment climate, the profitability and repatriation of
foreign direct investment, the trade policies and agreements, the
competitiveness and diversification of sectors, the quality
standards and regulations, the infrastructure and technology, and
the external shocks
17
FOREIGN DIRECT INVESTMENT
-1,500.00
-1,000.00
-500.00
0.00
500.00
1,000.00
1,500.00
2,000.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Foreign Direct Investment (USD million)
Foreign Direct Investment (USD million)

18. PORTFOLIO INVESTMENT & OTHER INVESTMENT
PORTFOLIO INVESTMENT
Portfolio investment reflects the net inflows of
investment in equity and debt securities
Sri Lanka recorded a net inflow of portfolio
investment of USD 0.4 billion in 2012,
compared to a projected net inflow of portfolio
investment of USD 0.3 billion in 2023
Portfolio investment as a percentage of GDP
decreased from 0.6 percent in 2012 to 0.4
percent in 2023
OTHER INVESTMENT
Other investment reflects the net inflows of
investment in trade credits, loans, currency and
deposits, and other assets and liabilities
Sri Lanka recorded a net inflow of other
investment of USD 1.0 billion in 2012,
compared to a projected net outflow of other
investment of USD 0.1 billion in 2023
Other investment as a percentage of GDP
decreased from 1.4 percent in 2012 to -0.1
percent in 2023
18
-1500
-1000
-500
0
500
1000
1500
2000
2500
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Portfolio Investment & Other Investment
Portfolio Investment (USD million)
Other Investment (USD million)

19. • Reserve assets are the external assets that are readily available to
and controlled by monetary authorities for direct financing of
payments imbalances, for indirectly regulating the magnitudes of
such imbalances through intervention in exchange markets to
affect the currency exchange rate, and/or for other purposes
• Sri Lanka recorded a reserve assets of USD 6.0 billion in 2012,
compared to a projected reserve assets of USD 3.5 billion in 2023
• The decline was mainly due to a lower level of foreign currency
reserves, gold reserves, and special drawing rights in 2023
• Reserve assets as a percentage of GDP decreased from 8.4 percent
in 2012 to 4.0 percent in 2023
• Reserve assets performance is influenced by factors such as the
current account and financial account balance, the exchange rate
regime, the monetary policy stance, the external debt
management, and the external shocks
19
RESERVE ASSETS
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Reserve Assets (USD million)
Reserve Assets (USD million)

20. • The balance of payments (BOP) is a record of all the transactions
between a country and the rest of the world. It consists of two
main components: the current account and the capital and
financial account
• The current account reflects the trade balance, net income from
abroad, and net current transfers
• The capital and financial account reflects the net change in
ownership of foreign assets
• Sri Lanka recorded a BOP surplus of USD 0.4 billion in 2012,
compared to a projected BOP deficit of USD 0.9 billion in 20231
• The deterioration was mainly due to a lower surplus in the capital
and financial account and a higher deficit in the current account in
2023
• The BOP surplus or deficit as a percentage of GDP decreased from
0.6 percent in 2012 to -1.0 percent in 2023
• The BOP performance is influenced by factors such as commodity
prices, exchange rates, trade policies, competitiveness, quality
standards, infrastructure, external debt, external shocks, and policy
measures
20
BALANCE OF PAYMENTS
-1400
-1200
-1000
-800
-600
-400
-200
0
200
400
600
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Balance of Payments (USD million)
Balance of Payments (USD million)

21. POLICY IMPLICATIONS AND CHALLENGES
CHALLENGES
• Sri Lanka has posted a record US$2.32 billion balance of payments (BOP)
deficit in 2020, down from a surplus of 377 million dollars in 2019, according
to official data. This was partly due to the impact of the COVID-19 pandemic
on tourism, remittances and exports, as well as the depreciation of the rupee
and the increase in public debt.
• Sri Lanka’s current account balance as a percentage of GDP was -5.9% in 2020,
compared to -2.7% in 2019, according to the World Bank. This means that the
country spent more on imports, interest payments and transfers than it
earned from exports, income and transfers.
• Sri Lanka’s trade deficit widened to US$2.06 billion in the first quarter of 2021,
from US$1.67 billion in the same period of 2020, according to the
International Monetary Fund (IMF). This was mainly due to a faster recovery of
imports than exports after the lockdown measures were eased.
• Sri Lanka’s external debt stood at US$55.5 billion as of June 2021, equivalent
to 61.4% of GDP, according to the Central Bank of Sri Lanka. The country faces
significant debt service obligations in the coming years, especially in 2022 and
2023, when large sovereign bond repayments are due.
• The role of balance of payments in policy formulation is crucial, as it
reflects the country’s external position and vulnerability to shocks. A
persistent BOP deficit can lead to a loss of foreign exchange reserves,
currency depreciation, inflation and lower growth.
• Addressing trade imbalances and promoting exports are important for
improving the current account balance and generating foreign exchange
earnings. Sri Lanka needs to diversify its export basket, enhance its
competitiveness, reduce import dependence and pursue regional and
bilateral trade agreements.
• Managing external debt and financial vulnerabilities is essential for
maintaining macroeconomic stability and avoiding a debt crisis. Sri Lanka
needs to mobilize domestic and foreign financing sources, restructure its
debt profile, seek debt relief from creditors and implement fiscal
consolidation measures
POLICY IMPLICATIONS
21

22. • Furthermore, it is imperative for Sri Lanka to adopt a multi-faceted
approach in tackling the challenges posed by the balance of payments
deficits. Policymakers must foster an environment that encourages
innovation, entrepreneurship, and technological advancements to drive
productivity and economic diversification. Investments in education and
skill development are vital to equip the workforce with the capabilities
needed to participate in emerging industries.
• Addressing the impact of the COVID-19 pandemic on tourism and
remittances requires strategic planning and adaptability. Governments
should prioritize the revival of the tourism sector through targeted
marketing campaigns, infrastructure development, and ensuring health
and safety standards. Additionally, initiatives that facilitate the transfer
of remittances and reduce transaction costs can bolster their
contribution to the current account.
• In managing external debt, transparency and prudent borrowing
practices are essential. Sri Lanka must engage in constructive dialogues
with creditors to negotiate favorable terms and consider alternative
sources of financing. Developing domestic capital markets can also
provide additional funding options and reduce reliance on foreign debt.
22
CONCLUSION
• To improve the country's trade balance, investing in research and
development can foster innovation and lead to the creation of
export-oriented industries. Diversification of exports to new
markets and exploring high-value products can reduce dependency
on a few trading partners and mitigate the impact of external
shocks.
• In conclusion, Sri Lanka faces significant challenges in achieving a
sustainable balance of payments position, but there are ample
opportunities for growth and development. Through sound
economic policies, targeted reforms, and proactive measures, Sri
Lanka can build a resilient economy capable of weathering
uncertainties and securing a prosperous future for its people.
Collaboration between the government, private sector, and civil
society will be crucial in implementing the proposed policy
implications and realizing the country's full economic potential.
With determination and effective governance, Sri Lanka can
overcome its current challenges and pave the way for a brighter
and more prosperous future.

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