Interview with Dr. P. Nandalal Weerasinghe, Governor, Central Bank of Sri Lanka (CBSL)

02 Oct Interview with Dr. P. Nandalal Weerasinghe, Governor, Central Bank of Sri Lanka (CBSL)

Sri Lanka has emerged from its most severe financial crisis in decades. How do you assess the current financial and monetary climate and what trajectory do you foresee for the CBSL over the next 3–5 years?

Sri Lanka faced a severe economic crisis with inflation peaking at around 70% and the currency depreciating from 200 to around 370 rupees per US dollar. These shocks were rooted in long-standing structural weaknesses and policy missteps in 2021–22. As a result, usable reserves fell from about $8 billion in 2019 to nearly zero by April 2022, triggering shortages of fuel, food, electricity and transport, along with deep social and political unrest.

I assumed office as governor of the Central Bank in April 2022, at the height of the crisis. My first step was to tighten monetary policy by raising the policy rate by 700 basis points. The next day, it was recommended to temporarily suspend external debt servicing, since usable reserves had dropped to only $25 million against obligations of $6 billion in the coming year. Soon after, we began negotiations with the IMF for restructuring and a support package, which became the anchor for stabilization. The process was painful, marked by protests and political transition, but we maintained focus on reforms. By March 2023, the IMF board approved our program. Since then, fiscal consolidation has increased government revenue from 8% to 15% of GDP, one of the sharpest improvements globally. After contracting 7.3% in 2022 and 2.3% in 2023, the economy grew 5.0% in 2024, with similar growth expected this year. Today, macroeconomic stability has been restored and Sri Lanka is firmly back on a path of recovery.

The next phase of reforms must focus on turning stability into growth, so that living standards — badly hit during the crisis — can recover. Poverty rose to nearly 25% and lifting people out of it requires faster growth for several years. The foundation is now set: debt has been restructured, giving the government fiscal space for reforms, while the Central Bank’s priority is to maintain low inflation and a stable financial system. We brought inflation down from around 70% to near zero within a year — one of the fastest disinflation episodes in the world. With new legislation, the Central Bank now operates independently, free from fiscal dominance, ensuring monetary and financial stability. At the same time, the government has enacted the Public Financial Management Act, committing to fiscal discipline and sustainable debt. Together, these frameworks greatly reduce the risk of returning to crisis.

The challenge ahead is growth. Sri Lanka has enormous potential in tourism, ports and logistics, apparel, IT and professional services, supported by a highly educated workforce and strategic location, but to unlock this, structural reforms are essential. We need to cut red tape, improve customs and tax systems and makeit easier to do business. If these reforms advance, we can attract investment, boost competitiveness and achieve the faster, inclusive growth our people need.

Stabilization required credibility and decisive action, from debt restructuring and IMF reforms to interest rate policy. How do you balance inflation control with the need to support economic recovery?

With the new Central Banking Act, Sri Lanka has adopted a flexible inflation-targeting regime. This landmark reform strengthens central bank independence and anchors monetary policy in law, ensuring stable inflation as the foundation for sustainable growth. Our mandate is price stability, not generating growth through artificially low interest rates, which only create boom–bust cycles. By keeping inflation around target, we provide predictability for interest rates and the exchange rate, creating a stable environment for investment. Monetary policy can help the economy operate close to its potential, but raising potential growth will require broader reforms — in fiscal policy, structural changes and export competitiveness. That is why stability and reforms must go hand in hand.

Which projects are currently showing the most progress and which do you believe will prove most transformative for the long-term? Are there other key initiatives the CBSL is driving that you feel deserve more attention?

Priorities shift over time. In the past two years, our main focus has been restoring stability through the IMF program, which runs until 2027. Completing this program and staying on course remains the first priority — any deviation could risk reversing the hard-won progress. Beyond that, we see digitalization and financial inclusion as crucial to lifting potential growth. Faster adoption of digital solutions can raise productivity, while expanding access to financial services — especially for SMEs and underserved communities — allows more people to contribute to the economy.

A key enabler is financial literacy. While Sri Lankans have a high basic education, many lack knowledge in savings, investment and entrepreneurship. Strengthening financial literacy, particularly for rural communities and women, will make inclusion meaningful and support sustainable growth. When interest rates are reduced, the benefits must reach everyone — including MSMEs and low-income groups. Financial inclusion ensures that monetary policy is transmitted effectively across the whole economy. It also strengthens financial stability.

As more people use formal, regulated institutions, trust in the banking system grows and financial intermediation becomes more efficient — savings are channeled into investments and credit for entrepreneurs. By improving inclusion and financial literacy, more people can participate productively in the economy. This not only supports stability but can also lift Sri Lanka’s growth prospects to 6–7%, helping to reduce poverty over the medium term.

Looking ahead to 2027, which innovations from fintech collaboration to cross-border payment systems will most redefine Sri Lanka’s financial landscape and how is CBSL positioning itself as both regulator and enabler of financial technology?

The Central Bank plays a key role in promoting digital financial services by regulating payments and settlements. We already have strong systems in place, such as LankaPay, LankaQR, online banking and web-based payments, but adoption remains below expectations. Many rural communities and older citizens still prefer cash and branch-based services, partly because Sri Lanka already has one of the most extensive banking networks in the region. While the younger generation quickly embraces digital tools, shifting habits among others is more challenging. Expanding digital inclusion remains a priority to increase efficiency and access across the country. Although Sri Lanka has the infrastructure for digital finance, including QR codes, online payments and fintech solutions, adoption is still low.

Greater smartphone use, internet access and a unique digital ID are critical to accelerate digital inclusion. One example is GovPay. The government is making certain payments digital-only. By providing the necessary facilities and making digital payment mandatory for these services, people are more likely to adopt it, rather than defaulting to in-person bank visits. The government is prioritizing the rollout of a national digital ID, which will make accessing financial services much easier, as seen in India. Until then, we are promoting digital payments through awareness campaigns, regional outreach and by encouraging banks and fintechs to innovate. Our FinTech sandbox allows new solutions to be tested and scaled, helping expand digital finance step by step.

How do you plan to deepen engagement with global investors, particularly in the United States, to attract FDI and portfolio flows into Sri Lanka and what sets Sri Lanka apart from other frontier markets competing for capital?

Capital flows take two forms: short-term portfolio investments and long-term foreign direct investment. Portfolio flows mainly involve government securities and depend heavily on market confidence. During the crisis, inflows dried up, but after completing debt restructuring, investors supported Sri Lanka by exchanging old bonds for new ones, which are now trading in the market.

Long-term investments — in manufacturing, IT and other sectors — require a different approach, focused on building stable facilities and lasting partnerships. Both forms of capital are essential for growth. We actively engage with global investors through forums in Singapore, London, New York, Washington and elsewhere, often in partnership with embassies and the Colombo Stock Exchange. These meetings allow us to share Sri Lanka’s recovery story, which has generated strong interest.

Our immediate focus is on improving credit ratings. After restructuring, we moved from default to CCC and we aim to reach B level, which will reopen access to international capital markets. This progress builds confidence in Sri Lanka’s ability to recover and grow. Beyond portfolio flows, we are working to attract long-term FDI into ports, airports, tourism, renewable energy, IT and infrastructure. These sectors have huge potential and with the right reforms and promotion, they can drive sustainable growth.

Looking toward 2030, what is your broader vision for CBSL’s role in the country’s development and how do you see the Central Bank contributing not only to monetary stability, but also to inclusive growth and long-term prosperity?

The Central Bank’s core mandate is to maintain price stability — today, next year and beyond 2030. This is non-negotiable. Beyond that, we support inclusive growth by promoting financial inclusion, literacy and digitalization, which help reduce inequality and expand access to financial services. In the short term, we aim to build stronger buffers in both the external sector and the financial system. How we have built up our foreign exchange reserves from the lows to the current levels reflects our intent in strengthening buffers. Maintaining inflation around the 5% target, combined with these reforms, will strengthen stability and help the country realize its potential growth.

What is your final message to the readers of USA Today?

Sri Lanka is unique in its diversity — in just one week, visitors can experience beaches, mountains, tea plantations, cultural sites, historical landmarks and even health tourism. No other country offers such diversity in such a compact area. For investors, Sri Lanka demonstrates resilience. Despite one of the deepest recent crises, the economy recovered within two years, showing stability and long-term potential. This makes the country an attractive destination to establish a lasting investment footprint.