Foreign investors continued to pull money out of Sri Lankan government securities even after the Central Bank of Sri Lanka moved aggressively to tighten monetary policy, highlighting growing pressure on the country’s financial markets as the rupee weakens and inflationary concerns deepen.
Central Bank data shows that foreign investors sold a net Rs. 4,768 million worth of government securities during the week ending June 4, equivalent to nearly US$14.7 million. The latest withdrawals came just days after the Central Bank raised its key monetary policy rate by 100 basis points on May 26, a move aimed at containing demand-driven inflation and stabilizing market conditions.
The rate increase had been widely viewed as an attempt to make Sri Lankan government securities more attractive to investors by offering higher returns. Economists had expected the measure to help slow the outflow of foreign capital. Instead, the latest figures indicate that foreign investors continued to exit the market, adding to concerns over the direction of capital flows and the broader economy.
Over the past four weeks alone, net foreign capital outflows from government securities have reached approximately US$65 million, according to Central Bank data. The withdrawals have coincided with a renewed depreciation of the Sri Lankan rupee, which has become a central concern for policymakers and investors alike.
The currency experienced sharp volatility in recent weeks. After falling to a low of Rs. 354 against the US dollar on May 21, the rupee recovered to around Rs. 334 before weakening once again. Central Bank data confirms that the currency resumed its decline this week despite the policy tightening measures.
Officials have attributed the depreciation largely to rising import costs, particularly for fuel and vehicles, linked to ongoing conflict and instability in the Middle East. The increased demand for foreign currency to finance imports has placed pressure on the exchange rate, reversing a period of relative stability that had lasted for more than three years.
By June 5, the rupee had depreciated by 7.8 percent since the beginning of the year, marking a significant shift in a currency that had remained comparatively steady through much of the post-crisis recovery period.
The changing trajectory of capital flows illustrates the speed with which market sentiment has shifted. Central Bank figures show that Sri Lanka recorded net capital inflows of Rs. 21.9 billion during the first six weeks of the year. By the end of the first 22 weeks, however, the position had reversed dramatically, with net outflows reaching Rs. 19 billion.
The developments are unfolding against a backdrop of heightened international uncertainty. Investors around the world are closely monitoring economic growth prospects as tensions and conflict in the Middle East raise concerns about energy prices, trade disruptions, and financial market volatility.
Only a year ago, Sri Lanka’s rupee-denominated government bonds had attracted substantial foreign interest. Foreign capital inflows into rupee bonds reached Rs. 71.5 billion, or roughly US$234.4 million, during the previous year. Analysts had pointed to the country’s deflationary policies and import restrictions as factors that supported investor confidence and helped draw foreign funds into local debt markets.
That environment has changed in recent months as inflationary pressures have returned. Fuel prices have increased by more than 40 percent over the past two months, contributing to a rise in consumer prices and prompting the Central Bank to respond with tighter monetary policy. Authorities have described the rate hike as a necessary step to contain inflation driven by rising demand and higher costs.
While policymakers seek to stabilize markets, a separate controversy has emerged in the political arena following claims by opposition lawmakers regarding figures contained in a report issued by the International Monetary Fund.
Speaking at separate public events, former minister Patali Champika Ranawaka and Member of Parliament Dayasiri Jayasekara said that a 143-page IMF report indicated that US$80 million had disappeared from the country in 2025. Their remarks have generated attention amid wider concerns about financial transparency and the management of foreign exchange flows.
Jayasekara further cited figures that he said showed a deficit of negative US$254 million in 2024, which had widened to negative US$808 million in 2025. Referring to those numbers, he called on the Central Bank to clarify whether US$808 million had left the institution and whether any resulting losses had occurred.
According to Jayasekara, the report appeared to indicate that US$808 million connected to the Central Bank had moved out of the country. He also alleged that similar incidents had been reported repeatedly since the current government assumed office.
The opposition lawmaker suggested that the funds may have been lost through informal or illegal channels. He argued that some remittances entering Sri Lanka may not have been fully captured through official financial systems, raising questions about whether all foreign currency inflows had been properly recorded.
The claims have added another layer of complexity to an economic landscape already shaped by currency depreciation, rising inflation, shifting investor sentiment, and external geopolitical pressures. As foreign capital continues to leave government securities and the rupee remains under strain, attention is now focused both on the Central Bank’s efforts to stabilize the economy and on the questions raised regarding the financial figures cited by opposition politicians.
For now, the latest Central Bank data points to continuing pressure on Sri Lanka’s currency and debt markets, while the allegations surrounding the IMF report have placed additional scrutiny on the country’s financial position at a time of heightened economic sensitivity.
