Foreign investments important but forex flows remain priority: CB Governor

By Shannine Daniel

Foreign exchange earnings are more critical to Sri Lanka’s macroeconomic stability than foreign investments, Central Bank Governor Dr. Nandalal Weerasinghe said addressing the first Monetary Policy Review for 2026. 

He identified tourism, workers’ remittances and exports as the country’s main sources of foreign exchange, stressing that strengthening these sectors is vital to sustaining external sector stability.

“We need strong foreign exchange inflows to maintain macroeconomic stability,” Dr. Weerasinghe said, highlighting the continued importance of these traditional revenue sources.

Commenting on global trade disruptions, he said such shocks are not new. 

“The most recent example was the US trade tariffs announced in April last year,” he noted, adding that global trade has since been marked by volatility, trade diversions and frequent tariff adjustments.

“In our case, we were able to negotiate a steady 20 percent tariff rate compared to other competitive countries. I don’t see any trade-related issues for Sri Lanka because of this,” he said.

He pointed out that some competitor economies adjust tariffs on a weekly basis.

Dr. Weerasinghe also flagged the emerging trade arrangements, including the India-European Union agreement and Sri Lanka’s recent duty-free access to the UK market. These could trigger trade diversions and volatile flows in the near term.

While emphasising foreign exchange earnings, Dr. Weerasinghe acknowledged the role of foreign investments in supporting long-term growth. He said that attracting significant inflows would take time and depend on the improvements in Sri Lanka’s sovereign credit ratings.

“We hope that this year there will be another upgrade of the sovereign ratings. Last year we had an upgrade. The ratings will certainly help the confidence of foreign investors,” he said.

On the domestic front, Dr. Weerasinghe highlighted positive trends, including expanding private sector credit, increased activity in the local stock market and rising investor confidence.

“We need more stability to gain more foreign investments. That is why continuous macro-stability and upgraded ratings are crucial,” he stressed.

Sri Lanka has posted current account surpluses continuously over the past three years and the Central Bank expects another surplus this year, driven by stronger foreign exchange earnings.

Dr. Weerasinghe also stressed the importance of building economic buffers to absorb shocks. On the fiscal side, the government has strengthened cash reserves, while the Central Bank has lifted the foreign exchange reserves to their highest levels since the 2022 crisis.

“These fiscal buffers, foreign exchange reserves and monetary policy instruments are key macroeconomic safeguards,” he said. 

He added that the absence of such buffers contributed significantly to the severe economic difficulties in 2022.