The Central Bank Governor remains to balance independence with economic reforms

By: Staff Writer

September 23, Colombo (LNW): The Central Bank of Sri Lanka operates with a degree of independence, as the finance minister is unable to direct its actions, and even the president cannot arbitrarily remove the governor. However, the Treasury Secretary’s role as a voting member of the central bank’s monetary board gives the finance ministry a voice in monetary policy decisions.

Given Sri Lanka’s complex economic challenges, fiscal and financial policies must work in tandem. Complete separation of monetary policy from fiscal policy is not feasible, as monetary policies should not operate in isolation. The central bank’s primary goal should be to control inflation while avoiding harm to economic growth. Though inflation is primarily a monetary issue, it is closely tied to real-world economic factors.

Governor Nandalal Weerasinghe, a key figure in implementing economic reforms under an IMF-led bailout package during Sri Lanka’s severe economic crisis, stated he has no intention of resigning despite President Ranil Wickremesinghe’s recent electoral defeat. The newly elected President, Anura Kumara Dissanayaka, has vowed to renegotiate the IMF deal.

Under Weerasinghe’s leadership, Sri Lanka’s currency has stabilized and appreciated, inflation has dropped from over 70% to single digits, and the central bank has enacted new legislation to secure its independence from the government. Additionally, money printing has ceased. Weerasinghe, a seasoned central banker, consistently advocates for continuing the IMF reforms to ensure long-term economic stability.

Appointed as the 17th governor of the Central Bank of Sri Lanka by former President Gotabaya Rajapaksa in April 2022, Weerasinghe was reappointed for another six-year term in July 2022. The appointment of a central bank governor requires the president’s approval along with the Constitutional Council, though the governor cannot be removed at the president’s discretion.

In compliance with the Central Bank of Sri Lanka Act of 2023, Weerasinghe recently briefed parliament members, highlighting key economic achievements. These include lowering inflation to 5% and reducing the policy interest rate. He also stressed the importance of strengthening reserves to stabilize the exchange rate and bolster the national currency.