Sri Lanka’s trade paradox: Rising exports, declining terms of trade and growing deficit

IN 2024, Sri Lanka's merchandise exports increased from $ 11,911 million in 2023 to $ 12,772 million, marking a 7.2% growth, as illustrated in Table 01. This growth reflects the resilience of the country's export sector, which has shown remarkable strength amidst the challenges of the COVID-19 pandemic and the subsequent economic crisis during recent past. Nevertheless, several underlying aspects warrant closer examination.

- By Eranda Roshan Fernando

Although merchandise exports grew by 7.2% in 2024, merchandise imports increased by 12.1%, resulting in a widening trade deficit. Consequently, the trade deficit expanded from $ 4.9 billion in 2023 to $ 6 billion in 2024 as illustrated in the Table 01. This widening gap underscores the urgency of implementing effective policy measures aimed at boosting export performance and curbing import dependency to minimise the trade deficit.

Terms of trade and export performance

Terms of trade refer to the ratio between a country's average export prices and average import prices. It indicates how many import units a country can purchase with a given quantity of exports. An improvement in the terms of trade means a country can purchase more imports for the same value of exports, reflecting stronger purchasing power. Conversely, a deterioration implies the country must export more to afford the same level of imports.