Last year, Sri Lanka’s external sector came under pressure due to a surge in vehicle imports, which largely reflected the release of pent-up demand at a scale far higher than anticipated. The situation was further complicated by elevated global uncertainties, including shifts in international trade policies and heightened geopolitical tensions, the Central Bank noted.
The Central Bank added that false speculation regarding the reinstatement of import restrictions also contributed to stress on foreign exchange liquidity and the domestic currency.
Central Bank Governor Nandalal Weerasinghe, presenting the Policy Agenda for 2026 and Beyond, said that inflation is projected to gradually rise in 2026, reaching the target by the second half of the year. However, both upside and downside risks remain, particularly due to the devastation caused by Cyclone Ditwah. Its impact on supply chains and infrastructure could weigh on growth, while reconstruction efforts are expected to be growth-positive. Overall, the economy is forecast to expand by around 4–5 percent in 2026, continuing the momentum of the past two years.
The Governor highlighted that Sri Lanka’s economy now has stronger buffers across fiscal, external, and monetary sectors, enabling a faster recovery from disasters than in previous years. He also noted the increased frequency of extreme weather events, emphasizing that central banks have limited tools to address supply-side shocks and urging national-level measures to mitigate such impacts.
Referring to Gross Official Reserves (GOR), he stated that despite challenges such as external debt obligations and rising vehicle imports, reserves hovered around US$ 6.0–6.3 billion for most of the year and surpassed US$ 6.8 billion by the end of 2025—the highest level since the crisis. This was supported by US$ 2.0 billion in net foreign exchange purchases from the domestic market and proceeds from multilateral agencies. The Central Bank reiterated its commitment to further build reserves through market purchases to ensure reserve adequacy while maintaining exchange rate flexibility.
