Introduction to Sri Lanka’s Economic Plan
The Central Bank of Sri Lanka has unveiled its policy agenda for 2026, outlining plans to shift the country’s economy from recovery to enhanced growth while building resilience. Dr. Nandalal Weerasinghe, the Central Bank Governor, expressed optimism about the economy’s potential for growth, citing a expected growth rate of 4-5% in 2026.
Economic Growth and Stability
The Sri Lankan economy is expected to grow by around 4-5% in 2026, backed by private and public spending. The governor noted that the economy has made notable progress in building buffers across main sectors, including fiscal, external, and monetary sectors. This progress is expected to enable the economy to bounce back faster from devastation, such as the floods that occurred last year. Despite the temporary setback caused by the floods, the Sri Lankan economy was estimated to have grown by around 5.0% in 2025, with prices rising by only 2.1% in the 12 months through December 2025.
Inflation Target and Price Stability
Dr. Weerasinghe expressed optimism about maintaining price stability, a prerequisite for growth at 5.0%, which is the medium-term target. However, he mentioned that the Central Bank might review the agreement with the government on the inflation target this year. The Central Bank has undershot its target inflation for two consecutive years, which has helped the economy to bounce back quickly. The inflation rate has been less than the lower band of 3.0% since the second half of 2024, which is considered good for the economy.
Financial System Stability
The governor sounded upbeat about the improved asset quality, profitability, and enhanced efficiency in the financial sector. The Central Bank has scheduled its first monetary policy meeting for January 27, with six meetings planned for the year. The advance calendar also outlines key policies to be implemented in 2026 and beyond, including modifications to banks’ statutory reserve requirement, introduction of a benchmark intra-day reference FX rate, and updates to the base years for NEER & REER indices.
Key Policies for 2026 and Beyond
The Central Bank has announced several key policies to be implemented in 2026 and beyond, including:
- Modifications to banks’ statutory reserve requirement to influence liquidity
- Introduction of a benchmark intra-day reference FX rate for better transparency
- Updates to the base years for NEER & REER indices
- Establishment of coordinated data sharing arrangements between the Central Bank and other financial sector regulators
- Enhancement of banking sector resilience through the Countercyclical Capital Buffer framework
- Broadening of the Green Finance Taxonomy
- Review of the legal framework governing non-bank finance companies
- Implementation of a masterplan for consolidation of banks and finance companies for a more resilient financial sector
- Further enhancements to the Sri Lanka Deposit Insurance Scheme
- Legal reforms to the payment and settlement system
- Gradual relaxation of capital flow measures imposed since 2020
- Comprehensive review of the foreign exchange policy framework
- Strengthening of the Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) framework and Counter-Proliferation Financing (CPF) ahead of the upcoming mutual evaluation
- Integration of climate risk considerations into financial system stability
Conclusion
In conclusion, the Central Bank of Sri Lanka has outlined its policy agenda for 2026, which aims to shift the economy from recovery to enhanced growth while building resilience. The bank expects the economy to grow by around 4-5% in 2026, backed by private and public spending. The governor has expressed optimism about maintaining price stability and has announced several key policies to be implemented in 2026 and beyond. These policies are expected to enhance the stability of the financial system, improve the business environment, and promote economic growth. Overall, the Central Bank’s policy agenda for 2026 is expected to have a positive impact on the Sri Lankan economy and help it achieve its medium-term targets.
