By: Staff Writer
November 01, Colombo (LNW): In remarks that underscore both progress and lingering inconsistencies in economic management, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said the country’s financial system has regained “significant stability” yet cautioned that sluggish economic dynamics and policy misalignment continue to dampen momentum.
Dr. Weerasinghe emphasised at a media conference in Colombo recently that the banking and finance sector is now “much stronger” than a year ago, attributing the improvement to better asset quality, enhanced fiscal oversight and improved debt metrics.
He pointed to anticipated revenue above 15.3 percent of GDP and a primary surplus above the 2.3 percent budget target as rare signals of fiscal discipline under the current government.
However, while lauding the automatic boost from a surge in vehicle imports estimated at around US$1.5 billion this year compared with prior projections of US$1 billion he implied that such gains reflect short-term windfalls rather than deep structural reform.
On credit conditions, the Governor noted the shift in credit growth from the public sector toward the private sector as a positive rebalancing. Lending to the public sector is declining, creating more room for private-sector credit expansion, he said. However, he also acknowledged that overall financial intermediation remains below pre-crisis levels, and that interest margins continue to exceed 4 percentage points, something the bank will attempt to address through greater transparency and competition.
Dr. Weerasinghe’s medium-term outlook remains cautious: inflation is expected to settle at 5 percent next year and GDP growth is forecast at 4–5 percent in 2026, after a 5 percent expansion this year. These projections reflect the improved stability across fiscal, monetary and financial fronts but hinge on sustained discipline and policy coherence.
By highlighting both the gains and the work still required, the Governor’s comments implicitly underscore tensions in the government’s economic policy mix. On the one hand, improved revenue collection and a primary surplus point to fiscal discipline.
On the other, growth remains modest, margins remain high and the economy’s deeper structural driversinvestment, export competitiveness, and private-sector credit quality remain fragile. According to CBSL data, Sri Lanka’s economy grew around 5 percent in 2024, yet underlying dynamics remain sluggish, with inflation below target and domestic investment weak.
In short, while Governor Weerasinghe celebrates the “hard-won gains,” the underlying message is clear: without tighter policy alignment, structural reform and stronger growth drivers, the recovery may stall or fall short of its potential. The government now faces the challenge of turning temporary upswings into sustained, inclusive growth.
