Keywords
Mirror trade data
Capital flight
Trade misinvoicing
Corporate fraud
External stability
Abstract
This study estimates export underinvoicing in Sri Lanka from 2012 to 2023 using United Nations Comtrade mirror statistics. Analysing bilateral trade across 31 two-digit and specific six-digit Harmonised System Codes accounting for 64% of total merchandise exports, the research reveals that a minimum of 14% of goods export receipts equivalent to 2% of the Gross Domestic Product are lost annually due to underinvoicing. Aggregate capital outflows reached USD 17.7 billion, escalating to USD 21.2 billion when adjusted for imputed interest costs, exceeding both net external public borrowing and net foreign direct investment over the same period. Outflows surged during acute macroeconomic distress and are heavily concentrated in garments and precious stones exports, which account for over 73% of total underinvoicing. These findings indicate that curbing trade misinvoicing in Sri Lanka provides a more viable pathway to foreign exchange solvency than attempting to attract foreign investment through costly tax holidays.
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