The impact of the war in the Middle East was reflected in the performance of the External Sector in April 2026 as well. The external current account recorded a deficit in April 2026 compared to the surplus recorded during January through March 2026. This was mainly driven by the widened trade deficit, a moderation in the services surplus, and higher primary income account deficit, despite an increase in workers’ remittances compared to a year earlier. Consequently, the external current account recorded a marginal deficit during January to April 2026.

The merchandise trade deficit widened in April 2026, reflecting stronger growth in imports relative to exports. Further, during January–April 2026, the trade deficit widened to US$ 3.7 billion, compared to US$ 2.3 billion in the corresponding period of 2025.

Expenditure on fuel imports increased notably by 149.9% on a year-on-year basis to US$ 886 million in April 2026, driven by the surge in fuel prices in the global markets amid the ongoing conflict in the Middle East and higher import volumes.

Expenditure on motor vehicle imports, including both personal and commercial vehicles, amounted to US$ 208 million in April 2026, bringing total expenditure on motor vehicle imports to US$ 821 million during January-April 2026.

The terms of trade deteriorated on a year-on-year basis in April 2026, as the increase in import prices exceeded the increase in export prices. Meanwhile, the terms of trade also deteriorated during January–April 2026 compared to the corresponding period of the previous year.

The surplus in the services account declined by 37.8%, year-on-year, to US$ 229 million in April 2026, primarily due to the reduction in tourist earnings. The cumulative surplus also contracted by 24.3% during January to April 2026 compared to the corresponding period of 2025.

Tourist arrivals declined for the second consecutive month in April 2026 to 135,643, recording a year-on-year contraction of 22.3%, owing to the impact of Middle East conflict. Tourist earnings were estimated at US$ 157 million in April 2026, reflecting a year-on-year decline of 38.8%, and the cumulative earnings during first four months of 2026 declined by 19.4% amounting to US$ 1,111 million compared to the corresponding period of the previous year.

Workers’ remittances, amounting to US$ 768 million in April 2026, continued to sustain the positive momentum observed in recent months. On a cumulative basis, workers’ remittances during the first four months of the year recorded a year-on-year growth of 24.5% to US$ 3,063 million.

Foreign investments in the government securities market recorded a marginal net inflow of US$ 2 million, while foreign investments in the Colombo Stock Exchange (CSE), including both primary and secondary market transactions, recorded a net outflow of US$ 16 million during the month of April 2026.

Gross official reserves (GOR), including the swap facility with the People’s Bank of China (PBOC), stood around US$ 6.8 billion by end April 2026, amidst sizeable external debt service payments and net foreign exchange sales by the Central Bank.

As of end May 2026, the Sri Lanka rupee had depreciated by 5.4% against the US dollar on a year-to-date basis, reflecting heightened external sector pressures following the effects of the escalation of the Middle East conflict since late February 2026. This depreciation is in line with the currency depreciation trend that was observed in peer economies.

Meanwhile, the International Monetary Fund (IMF) Executive Board completed the combined Fifth and Sixth Reviews of the Extended Fund Facility for Sri Lanka on 27 May 2026, providing Sri Lanka with immediate access to SDR 508 million (about US$ 695 million) to support economic policies and reforms.

(CBSL)

LOLC Finance PLC, the flagship finance company of the LOLC Group and Sri Lanka’s largest non-bank financial institution, delivered a strong financial performance for the year ended 31 March 2026, supported by robust lending growth, stronger recurring income, improved asset quality and a capital position that remained comfortably above regulatory requirements.

The Company reported profit after tax of Rs. 27.4 billion for the year, compared with Rs. 25 billion in the previous year. At headline level, this represents growth of around 9%. However, the headline comparison does not fully capture the improvement in the Company’s underlying performance.

The previous year’s profit included significant non-recurring gains linked to Sri Lanka sovereign bond-related impairment reversals, partially offset by a derecognition loss. On a net basis, these one-off items added approximately Rs. 4 billion to the prior year result. Adjusting for this, the prior year’s underlying profit base was closer to Rs. 21 billion. Against that adjusted base, the current year profit of approximately Rs. 27 billion reflects underlying profitability growth of close to 30%.

This is the more important message behind the numbers. LOLC Finance did not merely preserve profitability in a recovering economic environment; it expanded its recurring earnings base materially, while simultaneously growing its balance sheet and improving key credit quality indicators.

The improvement was driven primarily by core income. Interest income increased to approximately Rs. 79 billion, supported by strong expansion in the lending portfolio. Interest expense rose at a slower pace to approximately Rs. 29 billion, allowing net interest income to grow to approximately Rs. 50 billion. This demonstrates the Company’s ability to expand its loan book while maintaining control over funding costs.

Net fee and commission income also improved, rising to approximately Rs. 3 billion, reflecting higher business volumes and broader customer activity. Total operating income increased to approximately Rs. 56 billion, despite the absence of the large sovereign bond-related gains that benefited the previous year. This shift from one-off gains to recurring operating income is a clear positive from an earnings-quality perspective.

The balance sheet story was equally significant. Total assets grew by approximately Rs. 129 billion during the year, reaching around Rs. 559 billion as at 31 March 2026. The main driver of this expansion was the lending portfolio, with gross loans and advances increasing from approximately Rs. 305 billion to approximately Rs. 423 billion, representing growth of nearly 39%.

This level of loan book expansion is notable not only because of its scale, but also because it was spread across multiple product categories. Growth was recorded across key lending lines including finance leases, gold loans, speed drafts, alternate finance, personal loans and term loans. This points to a broad-based recovery in customer demand rather than growth concentrated in a single product line.

Malaiyaha Tamil workers in Sri Lanka’s private tea estates and smallholdings are facing widespread labour abuses that amount to multiple indicators of forced labour, according to a new report released last week by Amnesty International.

‘The Sri Lankan government is urged to strengthen labour protections, improve enforcement mechanisms and remove barriers that prevent Malaiyaha Tamil workers from accessing their rights under both domestic law and international obligations, a media release on the report explained.

‘Workers are being subjected to intimidation, physical violence, harassment, debt bondage, restrictions on movements, wage withholding and severely poor living and working conditions, the release added.

Some extracts from the release:

‘The research focused on tea estates in Sri Lanka’s Southern Province, particularly in the Galle and Matara Districts. It is based on visits to 45 estates conducted between January 2024 and January 2026, alongside 159 interviews with workers, discussions with Estate Managers and Supervisors, and 15 focus group discussions involving 65 workers. Across all sites, researchers found what they describe as a consistent pattern of exploitation and discrimination affecting Malaiyaha Tamil workers.

‘Workers reported being forced to meet unrealistic daily tea-picking targets, often set at more than 25 kilograms per day. Failure to meet these targets reportedly resulted in wage deductions, delays, or reduced pay, sometimes bringing daily earnings down to as little as LKR 1,000 (around USD 3.10). Workers also described a cycle of wage advances and loans that left them increasingly indebted to estate owners, raising concerns about debt bondage in the plantation sector.

‘Several workers also told researchers they had experienced or witnessed verbal and physical abuse by estate managers, particularly when they were late for work, questioned unpaid wages, or failed to meet production targets. One worker described being beaten with hands, legs, and sticks, and said such violence was still occurring. Others reported that wages were often withheld or manipulated based on arbitrary assessments of productivity.

‘Employers frequently classify them as “casual workers,” which denies them access to maternity benefits, pensions, sickness leave, and other statutory entitlements. The report also notes that trade union representation is largely absent in the Estates surveyed, leaving workers with little collective bargaining power or protection against abuse. According to the report, workers face multiple barriers in accessing justice, including language barriers, discriminatory treatment by officials, lack of documentation, and weak labour inspection mechanisms. These factors, the report says, prevent effective enforcement of labour laws and allow abusive practices to continue largely unchecked.

‘Smriti Singh, Regional Director for South Asia at Amnesty International, said the findings reflect systematic violations of labour laws and a failure of enforcement by the state. She said, private tea estates are operating with little accountability and that the pattern of abuse raises serious concerns about forced labour.’

By Hiran H. Seneviratne