Business

‘You have my sympathy’, Sharmini Coorey tells Sri Lanka’s economic policymakers

Published

2 years ago

2023/11/6

Thilina Walpola

Dr. Sharmini Coorey

‘Sri Lanka cannot afford yet another replay of the old script’

‘People would know good governance when they see it’

by Sanath Nanayakkare

Dr. Sharmini Coorey last week expressed her understanding and sympathy with the Sri Lankan economic policymakers and the Central Bank of Sri Lanka (CBSL) for getting the blame from the general public as they were taking ‘corrective’ measures to rescue a faltering economy, without which it could ‘give way’ to another economic collapse in the years to come.

Dr. Coorey, Member of the Presidential Advisory Group on Multilateral Engagement and Debt Sustainability advising the government of Sri Lanka and a former Department Director of the International Monetary Fund (IMF) made this remark while delivering the 73rd Anniversary Oration of Central Bank of Sri Lanka (CBSL) on 01st November 2023 at the CBSL Head Office in Colombo.

Her oration was centred on the theme “The Way Forward: Price Stability and Prosperity Need Good Governance.

Addressing the policymaking and financial community in the audience she first recognised the talented and hardworking leaders and members of the CBSL staff and those on the policymaking front for taking on a ‘very challenging’ year and a half since April 2022 where they took ‘bold’ decisions in terms of technical work to stabilise the economy out of the deepest economic crisis that Sri Lanka has ever suffered.

Addressing the audience she said: “It is perhaps easy to take for granted the progress made so far. But let’s not forget that barely 20 months ago, Sri Lanka’s inflation was unanchored, the exchange rate was depreciating uncontrollably, foreign reserves were depleted and the economy was collapsing with shortages of food, fuel and essential medicine. However, you have been able to bring the inflation down from almost 74% in September 2022 to less than 2% a year later beating the projections. To accomplish this, financial stability was all the more important given the deep economic contraction together with the preceding pandemic which had dented financial sector balance sheets. The monetary policy was also responsive in lowering the policy rates as clear evidence was emerging that monthly inflation was stabilizing.”

“Let me say, based on my years of experience at the IMF working with countries around the world – often during economic stress – these are, by any standards, impressive accomplishments. Without skilled leadership and decision making the situation would have been a lot worse.”

“Deep monetary policy decisions were successful also because of the support from the government’s fiscal policy and the leeway given to the CBSL to conduct monetary policy according to its best judgment. Tax cuts from the previous government had reduced Sri Lanka’s tax ratio from 11% of GDP in 2019 to a mere 7.5% of GDP in 2020/21- one of the lowest in the world – lower even than very poor countries like Central African Republics. With interest rates taking up 73% of our revenue and the overall fiscal deficit of 12% of GDP in 2021, the fiscal position was not simply sustainable. The government took necessary steps to increase tax rates, tax collection and implement cost-recovery pricing in energy. Efforts were made to generate the needed improvements in the primary fiscal balance in line with the IMF-supported programme.”

“These were difficult decisions. They were politically unpopular, but were necessary. Unfortunately, the shift thus taken cannot turn around the economy quickly. So, people tend to blame the corrective approach to policymaking when the policymakers are doing the right thing rather than the reckless policies of the past that were fundamentally flawed. Such is the unenviable position of the policymakers who stepped into rescue their country from the crisis. So you have my sympathy.”

“So what now? Even though significant progress has been achieved, we are in a low level of equilibrium with our economic performance below potential. This crisis is not yet over. The only way out is to grow at a rate of about 5 or 6% a year in a sustainable and inclusive way. Without such work, we cannot escape our high debt burden even after a successful debt restructuring. And because the debt burden lies with the public sector, it will need to contract not just this year but also in the decade ahead. So growth will need to come from the private sector and be export-oriented given our foreign exchange need. There is simply no other option.”

“Much remains to be done to get the economy on a dynamic growth trajectory. It shouldn’t be taken for granted that having achieved your inflation target, it will stay within CBSL’s target of 5% or that the progressive fiscal endeavor would continue. Our post-independence economic history is full of stopgap policies and brief victories of stability that were not sustained. We cannot afford yet another replay of that familiar script. Why not? Well, this time it is really different for three reasons.”

According to the IMF even if we successfully restructure our debt and adhere to the tight policies that would generate a primary fiscal surplus of 2.2% of GDP , from 2025 until at least 2032, our public debt would decline to only about 95% of GDP by 2032 from about 130% of GDP now. By 2032, government debt to GDP would average 65%. Looking at our neighbours, this number is 55% in India, 40% in Indonesia and 54% in Thailand. So, unless we bring debt to GDP ratio to about 60-80% of GDP, the baseline debt ratio will be much higher. Sri Lanka will be at a higher risk of debt distress even after a successful debt restructuring. If we become complacent and go back to our past ways, we could easily go back to a crisis where we are unable to pay our debts. In such a context, the adjustments next time would be far more painful because we would already have restructured our domestic and external debt.

More people are now in poverty according to World Bank estimates and have little cushion against it. The UNDP has estimated that over a half the population grapples with multidimensional vulnerability. The World Food Programme has estimated that 31% of children aged under 5 are malnourished. Many people grapple with basic needs such as healthcare. Progressive education has been severely hampered as a result of the pandemic and the economic crisis. So, the impact of another debt default would entail adjustments that would be disastrous and would lead to social unrest.

Sri Lanka has suffered from a damaging outflow of professionals who are the backbone of economic recovery and growth. These professionals are leaving not merely because of taxes as is often said. They have lost hope because of the corruption Sri Lanka has been mired in for decades. They don’t see a future in a country where they don’t see the culprits are punished. We have also been vulnerable to many exogenous shocks like wars, higher world interest rates, poor agricultural harvests and natural disasters. We are on a knife-edge and there is no room for policy reversals.

“But, with the focus on progressive efforts, we can shift to a path of sustained growth and inclusive prosperity. What is the way forward? How can we avoid stop gap policies? For this we need, fiscal discipline, an open trade regime that encourages exports, protective markets, modernized labour laws and adequate infrastructure. I believe our fundamental problem is our poor governance. Unless we address that issue head on, we can’t overcome our economic problems and prosper. So, when we discuss economic policies, we need to primarily focus on the governance around those policies. What do we mean by good governance? There is no standard definition. But people know good governance when they see it.”

“My point today is not just about economic policies, for instance, whether interest rates or taxes or a particular SOE should be privatized or not. It is about ensuring policymaking and implementation more accountable, transparent and getting them to adhere to the rule of law and so on, which will improve the results of the economic policies. Good policymaking needs to be backed by strong institutions. It requires sustained social pressure to take on the vested interests that are served by poor governance. We need to ensure that policies serve the interests of not just a small group but an inclusive society,” Dr. Sharmini Coorey said.

All News Advertisement

Business

SriLankan Airlines Update on Middle East Operations

Published

7 hours ago

2026/03/3

Rashi Nihara

03 March 2026; Colombo – As airspace in certain parts of the Middle East continues to remain closed due to the ongoing conflict, the following SriLankan Airlines flights scheduled to operate today have been cancelled:

Flight Route
UL 225 Colombo–Dubai
UL 226 Dubai–Colombo
UL 231 Colombo–Dubai
UL 232 Dubai–Colombo
UL 229 Colombo–Kuwait
UL 230 Kuwait–Colombo
UL 217 Colombo–Doha
UL 218 Doha–Colombo
UL 253 Colombo–Dammam
UL 254 Dammam–Colombo
UL 265 Colombo–Riyadh
UL 266 Riyadh–Colombo

We sincerely appreciate our passengers’ understanding and patience as these cancellations are implemented in the interest of their safety and wellbeing.

For more information, please contact: 1979 (within Sri Lanka); +94 11 777 1979 (international); WhatsApp +94 74 444 1979 (chat only); your travel agent; or visit www.srilankan.com

Business

Middle East escalation sends oil soaring; Sri Lanka faces price shock despite assurances on supply

Published

17 hours ago

2026/03/3

Thilina Walpola

Vessels have been forced to anchor as Iran threatens to close the Strait of Hormuz

Global oil prices surged sharply yesterday following coordinated US and Israel-backed strikes on Iran, and Tehran’s retaliatory attacks targeting US interests in the region, alongside escalating hostilities involving Hezbollah in Lebanon. The renewed instability in the Middle East – the artery of the world’s energy supply – has sent tremors through financial markets and triggered fresh anxiety in oil-importing nations such as Sri Lanka.

Brent crude climbed steeply in early Asian trading, with traders pricing in the risk of supply disruptions through critical maritime chokepoints, particularly the Strait of Hormuz, through which nearly a fifth of global oil passes. Market analysts say the spike reflects not only immediate supply fears but also the potential for prolonged geopolitical tension that could keep prices elevated for months.

Meanwhile, Asian equities reacted nervously to the unfolding crisis. Major indices across the region retreated as investors fled risk assets, concerned that higher energy costs could dampen growth and reignite inflationary pressures.

Asian oil and gas stocks – the only winner in Asian equity markets – rallied strongly, reflecting expectations of higher revenues amid rising crude prices. This divergence of falling broader markets alongside rising oil shares signals investor anticipation of higher inflation and weaker consumer demand in emerging markets like Sri Lanka.

Meanwhile, reports of increased Chinese crude purchases are further compounding market anxiety. If Beijing accelerates buying to secure strategic reserves in anticipation of supply constraints, global prices could climb even further because China’s procurement strategy has great influence on the world oil price.

“Should Chinese demand rise while Middle Eastern exports face disruption, the supply-demand imbalance could tighten considerably, amplifying volatility in global energy markets”, say global energy market analysts.

In Sri Lanka, long queues have begun forming at fuel stations amid fears of shortages and higher pump prices once new shipments arrive. The government has sought to calm public nerves, stating that sufficient stocks are available for approximately one month and that fresh supplies are being sourced from India and Singapore.

Deputy Minister of Tourism, Dr. Ruwan Ranasinghe said that as Sri Lanka imports refined products primarily from India and trading hubs such as Singapore, direct disruptions to Middle Eastern sea routes would not immediately interrupt supply chains. He maintained that there is no cause for panic buying.

In an unusual show of political maturity, Prasad Siriwardena, an Opposition MP from the Samagi Jana Balawegaya (SJB) urged the public to remain calm and refrain from hoarding, warning that artificial shortages could emerge if panic-driven stockpiling spreads.

However, former minister Wimal Weerawansa criticised the government for failing to build a strategic reserve of at least three months, arguing that Sri Lanka’s total dependence on imported fuel leaves it dangerously exposed to prolonged geopolitical shocks.

Weerawansa contended that the government failed to anticipate the likelihood of US-Iran tensions escalating into direct confrontation and should have proactively guided petroleum authorities to secure adequate reserves in advance.

Meanwhile, an independent analyst told this reporter on the condition of anonymity that the global economic spillover could have wide-ranging consequences on Sri Lanka, outlining five factors.

Energy costs that feed into transportation, manufacturing and food prices

Tighter monetary policy risks as the Central Bank may hesitate to cut rates if inflation resurges

Slower growth as consumers and businesses reduce spending when energy costs rise

A widening trade deficit as Sri Lanka would face increased import bills

Pressure on the Rupee as increased dollar outflows for fuel imports could strain foreign exchange reserves

In conclusion, he said, “One can only hope that diplomacy prevails before oil’s surge turns into a sustained economic storm for the global economy.”

by Sanath Nanayakkare

Business

How ‘distant wars can quickly arrive at the domestic pump’

Published

17 hours ago

2026/03/3

Thilina Walpola

Vehicles lining-up for petrol in Colombo as panic buying takes control.

The harsh economic realities behind soothing words

Sri Lanka’s fragile economic recovery faces a renewed external threat as escalating conflict involving Iran sends global oil prices sharply higher, raising concerns over inflation, foreign reserves and fiscal stability.

While authorities insist there is no immediate fuel shortage, economists warn that prolonged instability in the Middle East could trigger a familiar and painful chain reaction in an import-dependent economy still recovering from its worst financial crisis in decades.

The state-run Ceylon Petroleum Corporation (CPC) confirmed that the country currently holds sufficient petrol and diesel stocks for more than a month.

Energy Minister Eng. Kumara Jayakody assured that scheduled shipments remain unaffected and urged the public to refrain from panic buying, warning that artificial demand could disrupt smooth distribution.

But behind those reassurances lies a harsher economic reality: Sri Lanka does not need a physical fuel shortage to suffer — a sustained spike in global crude prices alone could be enough.

Market jitters intensified amid fears that any escalation could threaten shipping through the Strait of Hormuz, the narrow maritime corridor through which a significant share of the world’s oil supply passes daily. Even speculation of disruption has historically been sufficient to push prices sharply upward.

Sri Lanka sources refined fuel from multiple markets, including India and Southeast Asia. However, global benchmark prices ultimately determine import costs. If crude prices remain elevated, the country’s monthly fuel import bill could surge — placing fresh strain on dollar reserves.

Higher oil prices would ripple across the entire economy. Transport, electricity generation, manufacturing, agriculture and food distribution are all energy-sensitive sectors. A sustained price increase could reverse recent gains in inflation control.

The Central Bank of Sri Lanka has worked to stabilise inflation and the rupee through tight monetary discipline. Analysts caution that a renewed oil shock could complicate this effort, widening the trade deficit and pressuring the exchange rate.

“Sri Lanka is structurally vulnerable to energy price shocks. Even without direct supply disruption, higher global prices immediately translate into macroeconomic stress, a senior economic analyst said.

The government is currently operating under strict fiscal consolidation targets as part of its recovery programme. A rising fuel bill could expand subsidy pressures or force politically sensitive fuel price adjustments.

Any increase in administered fuel prices would inevitably feed into cost-of-living pressures, testing public tolerance amid ongoing austerity.

Beyond oil markets, instability in the Middle East carries another risk: remittances. The Gulf region remains a key source of foreign employment for Sri Lankans and a crucial inflow of foreign exchange.

Any economic slowdown or labour disruption in the region could dampen remittance flows, reducing one of the country’s most stable dollar lifelines.

An energy expert said for Sri Lanka, the Iran conflict is not merely a distant geopolitical event. It is a potential economic stress test at a moment when stability remains hard-won.

“Whether this turns into a temporary price spike or a prolonged oil shock will determine how severely it tests the country’s recovery trajectory. For now, policymakers are watching global markets closely — aware that in today’s interconnected economy, distant wars can quickly arrive at the domestic pump.”

By Ifham Nizam