The country has suffered a gradual drop in foreign-exchange reserves since 2015. Last January, their reported level was more than 15% lower y-o-y.  Faced with a more uncertain global environment, goods exports – notably due to adverse weather conditions – and FDI inflows indeed contracted in 2016. In a context of fiscal consolidation and monetary tightening, they contributed to bring GDP growth to a lower level at 4.3% (from 4.8% in 2015). Given the country’s external liquidity deterioration, also including the pronounced jump of its short-term debt, Credendo has raised Sri Lanka’s short-term political risk from 3/7 to 4/7. Looking ahead, the support from the current IMF programme, stronger global demand and new infrastructure projects should be favourable to future economic developments and help Sri Lanka’s liquidity position to slowly improve.