Central Bank Governor Dr. Nandalal Weerasinghe and senior officials handing over the Annual Report to President Ranil Wickremesinghe at the Presidential Secretariat yesterday. Treasury Secretary Mahinda Siriwardena was present.

The Central Bank of Sri Lanka in its Annual Report 2022 released yesterday said that the Policy measures and reforms implemented by the Government and the Central Bank have yielded notable success.

The report said that Inflation returned to an impressive disinflation path following a historic peak in September 2022, and the exchange rate remained stable and registered an appreciation in early 2023, having depreciated sharply during the first half of 2022.

This report consisting of four main parts was presented to Finance, Economic Stabilization and National Policies Minister and President Ranil Wickremesinghe by CBSL Governor Dr. Nandalal Weerasinghe at the Finance Ministry yesterday. It highlighted that the external current account deficit remained modest alongside the gradual accumulation of official reserves, thereby enabling the reinstatement of exchange rate flexibility.

“The envisaged normalisation of foreign exchange flows and the completion of the debt restructuring process during 2023, and the sweeping reforms in the public sector, are expected  to pave way for the country’s progress towards improved and sustainable economic prospects”, the report said.

The Central Bank in its report insisted that the consistent and well co-ordinated policies, including those outlined in the IMF-Extended Fund Facility supported programme, should be executed in a timely manner to avert another crisis in the period ahead in the country’s efforts to emerge from the current crisis.

“The Government initiated measures in early 2022 to seek assistance from the International Monetary Fund (IMF) after months of indecisiveness. The IMF had already assessed that Sri Lanka’s public debt had reached unsustainable levels, hence, any funding assistance from the IMF needed to be preceded by efforts to restructure public debt”, the report said.

“When it reached a critical point of inability to service debt payments, the Government announced a debt standstill in mid-April 2022, thereby suspending the servicing of external debt, mainly bilateral and commercial debt, as an interim measure, while soliciting support from official and private creditors to restructure outstanding debt.

The CBSL report outlined how steps were taken to enhance enhance government revenue, curtail expenditure, introduce reforms to major State Owned Enterprises (SOE), implement import controls, and ration energy supply, while exploring bridging finance from bilateral and multilateral partners for essential expenditures as well as supporting the most vulnerable segments.

“With a multitude of goals to be achieved under the IMF-EFF arrangement, restoring public debt sustainability through the debt restructuring process will be one of the key milestones in the path towards attaining a sustained growth in the economy.

However, debt restructuring could pose near term challenges in the financial sector that need to be addressed proactively by the Government and Central Bank, thereby reinforcing the financial system stability in the period ahead.

“Having run an unsustainable macroeconomic model in tandem with the longstanding deficits in the budget balance and the external current account, the economy had fully exhausted its buffers by early 2022 as it was straddled by a myriad of vulnerabilities that emanated from both global and domestic sources”, the report said.

The first part of the CBSL report consists of eight chapters and 30 sub-chapters explaining the state of the economic affairs of the year, while the second part consists of a collection of gazettes and circulars related to various policy measures taken by the Government and the CBSL. The third part of this report explains the departments of the CBSL and their related roles and the

fourth part includes a list of laws and ordinances related to the banking system connected to the Government and the CBSL.

In accordance with Section 35 of the Monetary Law Act, the Monetary Board of the CBSL is required to produce an annual report on the economic conditions and the policies taken for that year and submit it to the Minister of Finance within four months after the end of the relevant year.

Secretary of the Ministry of Finance Mahinda Siriwardana, Director of the Economic Research Department of the Central Bank of Sri Lanka Dr. P.K.G.Harishchandra, Additional Directors of Economic Research Dr. Mrs.S.Jegajeevan and Dr. L. R. C. Pathberiya participated in this event.