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Draft for a new Monetary Law Act unveiled

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ECONOMYNEXT –Sri Lanka has unveiled a draft for a new Monetary Law Act which will give independence for the central bank to operate flexible policy and implement both monetary and exchange rate policy.The central bank will have two primary objectives under clause 06.

(1) The primary object of the Central Bank shall be to achieve and maintain domestic price stability.

(2) The other object of the Central Bank shall be to secure the financial system stability.

It is also seeking from legislators powers to support government policy and target an output gaps (growth).

Subject to the two objectives the central bank “shall” support the general economic policy framework of the Government provided for in any law.

In seeking price stability, the central bank “shall take into account, inter alia, the stabilization of output towards its potential level.

In the existing law there was no specific legal authority for the central bank to print money to boost growth, ex-Deputy Central Bank Governor W A Wijewardene had said. The stimulus or output gap targeting which led to currency crises was probably illegal.

The central bank would implement both money and exchange policies under the new law.

According to the new Section 20:

(1) Subject to the provisions of this Act, the powers, duties and functions of the Central Bank shall be to –

(a) determine and implement monetary policy; (b) determine and implement the exchange rate policy;

(c) hold and ensure the prudent and effective

management of the official international reserves of Sri Lanka.

According to Section 11 of the new law:

“(1) There shall be a Monetary Policy Board of the Central Bank (in this Act referred to as the “Monetary Policy Board”), which is charged with the formulation of monetary policy of the Central Bank and implementation of a flexible exchange rate regime in line with the flexible inflation targeting framework in order to achieve and maintain domestic price stability.:

In the previous law, under primary objectives, then Central Bank Governor A J Jayewardene removed a responsibility for exchange rate policy (stabilizing the external value do the rupee), after more active open market operations was developed as a pre-cursor to moving towards inflation targeting with a floating rate.

However, in practice the central bank continued to intervene in forex markets, collect reserves and sell, operating a so-called impossible trinity policy regime, triggering a series of currency crises especially from 2012 amid more aggressive open market operations, eventually leading to external default, according to critics.

Critics have called for tight laws to block the central bank from operating conflicting money and exchange rate policies and either confine it to operating monetary policy (low inflation targeting with a controlled interest rates), abandoning exchange rate policy or operate a hard peg and abandon money printing to suppress rates.

Legislators have in the past uncritically passed exchange and import controls law robbing the liberties of citizens, instead of blocking conflicting money and exchange policies of the central bank.The new law however will not have provisional advances, a method that limited money printing above the 1950 anchor to 10 percent of expected revenues.

Legislator Kabir Hashim, an economist, has already fired a warning shot, pointing out that the country’s economic bureuacrats have ignored top classical economists who advised Sri Lanka including Singapore economic architect Goh Ken Swee (who called for a hard peg) and B R Shenoy who called for a clean float.



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Navy seizes an Indian fishing trawler poaching in Sri Lankan waters north of Talaimannar

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During an operation conducted in the wee hours of Tuesday (23 Dec 25), the Sri Lanka Navy seized an Indian fishing trawler  and apprehended 12 Indian fishermen, while they were poaching in Sri Lankan waters north of Talaimannar.

Recognizing the detrimental effects of poaching on marine resources and the livelihoods of local fishing communities, the Sri Lanka Navy continues to conduct regular operations as
proactive measures to deter such activities. These efforts underscore the collective robust approach steadfast commitment to safeguarding the nation’s marine ecosystems while ensuring the economic security and wellbeing of its citizens.

The fishing trawler along with the fishermen held in this operation was handed over to the Fisheries Inspector of Mannar for onward legal proceedings.

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India’s External Affairs Minister meets Sri Lanka PM

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India’s External Affairs Minister, Dr. Subramaniam Jaishankar, met with the Prime Minister of Sri Lanka, Dr. Harini Amarasuriya, on 23 December at Temple Trees, during his visit to Sri Lanka as the Special Envoy of Indian Prime Minister Shri Narendra Modi.

The meeting took place as part of the official visit aimed at holding discussions with Sri Lanka’s top leadership, at a time when the nation commenced reconstruction efforts following the devastation caused by Cyclone Ditwah.

During the discussions, the Minister of External Affairs of India reaffirmed readiness to extend support for Sri Lanka, including assistance in rebuilding railways, bridges, and strengthening of the agricultural sector in the country. He also highlighted the importance of having effective systems in place to respond to disaster situations, supported by strong legislative, administrative, and institutional frameworks. Both sides reviewed ongoing relief efforts and explored avenues to further strengthen bilateral cooperation in disaster response and recovery.

The Prime Minister commended the Government of India for the continued support, noting that the recovery process following the devastation caused by Cyclone Ditwah include beyond immediate relief efforts to long-term measures such as resettlement, and reconstruction of habilitation and infrastructure.

The Prime Minister further stated that steps have been taken to reopen schools as part of the process of restoring normalcy, with close monitoring in place. The Prime Minister emphasized the need to ensure stability, reduce vulnerability, and strengthen protection mechanisms highlighting the solidarity of the people, their strong spirit of volunteerism, and collective action demonstrated during the emergency situation.

The event was attended by the High Commissioner of India Santosh Jha, Additional Secretary (IOR), MEA  Puneet Agrawal, Joint Secretary (EAMO), MEA  Sandeep Kumar Bayyapu, Deputy High Commissioner Dr. Satyanjal Pandey, and representing Sri Lankan delegation, Secretary to the Prime Minister  Pradeep Saputhanthri, Additional Secretary to the Prime minister Ms.Sagarika Bogahawatta, Director General (South Asia), Ministry of Foreign Affairs Samantha Pathirana, Deputy Director, South Asia Division, Ministry of Foreign Affairs Ms.Diana Perera.

[Prime minister’s media division]

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Sri Lanka’s coastline faces unfolding catastrophe: Expert

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Sri Lanka is standing on the edge of a coastal catastrophe, with the nation’s lifeline rapidly eroding under the combined assault of climate change, reckless development and weak compliance, Director General of the Department of Coast Conservation and Coastal Resource Management (DCC&CRM) Dr. Terney Pradeep Kumara has warned.

“This is no longer an environmental warning we can afford to ignore. The crisis is already unfolding before our eyes,” Dr. Kumara told The Island, cautioning that the degradation of Sri Lanka’s 1,620-kilometre coastline has reached a point where delayed action could trigger irreversible damage to ecosystems, livelihoods and national security.

He said accelerating coastal erosion, rising sea levels, saltwater intrusion and the collapse of natural barriers, such as coral reefs and mangroves, are placing entire coastal communities at risk. “When mangroves disappear and reefs are destroyed, villages lose their first line of defence. What follows are floods, loss of homes, declining fisheries and forced displacement,” he said.

Dr. Kumara stressed that the coastline is not merely a development frontier but the backbone of Sri Lanka’s economy and cultural identity. “More than half of our tourism assets, fisheries and key infrastructure are concentrated along the coast.

If the coast fails, the economy will feel the shock immediately,” he warned.

Condemning unregulated construction, illegal sand mining and environmentally blind infrastructure projects, he said short-term economic interests are pushing the coastline towards collapse. “We cannot keep fixing one eroding beach while creating three new erosion sites elsewhere. That is not management—it is destruction,” he said, calling for science-driven, ecosystem-based solutions instead of politically convenient quick fixes.

The Director General said the Department is intensifying enforcement and shifting towards integrated coastal zone management, but warned that laws alone will not save the coast. “This is a shared responsibility. Policymakers, developers, local authorities and the public must understand that every illegal structure, every destroyed mangrove, weakens the island’s natural shield,” he added.

With climate change intensifying storms and sea surges, Dr. Kumara warned that Sri Lanka’s vulnerability will only worsen without urgent, coordinated national action. “The sea has shaped this nation’s history and protected it for centuries. If we fail to protect the coast today, we will be remembered as the generation that allowed the island itself to be slowly eaten away,” he went on to say.

By Ifham Nizam

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