Sri Lanka in “much better position” to handle oil price shocks - CBSL Governor

The Governor of the Central Bank of Sri Lanka, Dr. Nandalal Weerasinghe has assured the public that Sri Lanka is now in a “much better position” to withstand global economic shocks, including rising oil prices and geopolitical tensions in the Middle East.

Speaking in an interview with Bloomberg recently, the Governor highlighted that the nation has built significant financial buffers, including foreign reserves that have surged from near-zero levels to over $7 billion. 

This provides a critical safety net against the rising oil prices and supply chain disruptions currently triggered by Middle East tensions.

The Governor emphasized that the domestic inflation environment has transformed, dropping from a crisis peak of 70% to a current rate of 1.6%. 

This low inflation gives the Central Bank “significant space” to absorb external price shocks without destabilizing the local economy. 

Unlike the previous crisis, where fuel shortages were caused by a total lack of foreign exchange, Dr. Weerasinghe clarified that any current risks are related to global supply logistics rather than a lack of domestic funding. 

He noted that the exchange rate will be allowed to act as a shock absorber to manage demand and protect the country’s fiscal health.

Addressing the ongoing program with the International Monetary Fund (IMF), Dr. Weerasinghe confirmed that while the December review was delayed due to the impact of recent cyclones and climate change, negotiations are set to resume around March 15. 

The government is aiming for IMF Executive Board approval by May 2026 to secure the next disbursement. He noted that the IMF program remains a “key pillar” of stability, and there is enough flexibility within the agreement to adjust targets based on the current global outlook and the domestic impact of natural disasters.

Despite the challenges, the Governor remains optimistic about national growth, projecting a GDP increase of nearly 5% for the year—outperforming initial IMF estimates of 2%. 

His primary concern remains the duration of the conflict in the Middle East; should the disruption exceed four to five weeks, the impact on global trade routes and supply chains could become a broader burden. 

For now, however, the Governor maintains that Sri Lanka has the monetary and fiscal buffers necessary to ensure that the economic recovery remains orderly and manageable.