Sri Lanka has good space to absorb price shocks: CenBank chief

Sri Lanka has good space to absorb price shocks: CenBank chief

Sri Lanka’s Central Bank Governor has highlighted the country’s improved capacity to absorb price shocks, citing structural reforms and macroeconomic stability achieved since the 2022 crisis. Following a severe economic downturn marked by 70% inflation and depleted foreign reserves, the nation implemented a stringent IMF-supported stabilization program. By late 2023, inflation had declined to single digits and is now converging toward the Central Bank’s 5% target, while real GDP growth has remained positive for eight consecutive quarters.

The Central Bank’s revised mandate, enshrined in updated legislation, emphasizes price and financial stability, supported by a flexible inflation-targeting framework and prohibition of monetary financing of fiscal deficits. Fiscal consolidation has also advanced, with revenues exceeding 15% of GDP and three consecutive years of primary surpluses. Strengthened institutional frameworks, including the establishment of a Public Debt Management Office and anti-corruption measures, have bolstered investor confidence and sovereign credit ratings.

External resilience has improved, with three years of current account surpluses enabling reserve accumulation and a more stable exchange rate. The Central Bank’s policy agenda for 2026 and beyond prioritizes growth-oriented reforms, including export diversification and digital transformation, to sustain recovery without compromising stability.

While global uncertainties persist, the Governor noted that Sri Lanka’s fiscal buffers, improved debt management, and institutional credibility provide a solid foundation to mitigate external shocks. The focus now is on embedding self-sustaining reforms to ensure long-term resilience and avoid overreliance on past crisis-driven adjustments.