The Hon. Chathuranga Abeysinghe - Deputy Minister of Industry and Entrepreneurship Development

¶ 01 Hon. Deputy Speaker, today’s topic is the Rules under the Central Bank of Sri Lanka Act regarding foreign exchange. We should discuss these in the context of the overall macroeconomic framework.

¶ 02 Over the last year and a half, the present Government has strengthened the economy in several ways. There is the external sector—imports, exports, foreign exchange—and the domestic economy—managing the Budget, Government revenue and expenditure. Financial sector stability—interest rates, inflation—is also critical. As a whole, these mechanisms are now functioning strongly.

¶ 03 The Central Bank, as an independent institution, is carrying out its mandate under the Central Bank Act. The Treasury is managing the fiscal system and has crafted a strong Budget year in 2025. No one can deny that. Those who analyze the economy know that, even dating back to the 1970s, some of the strongest macro indicators have emerged in 2025. We also know a large portion of Government revenue goes to interest payments. The key to reducing that burden is maintaining a primary surplus over time. As our spending long exceeded revenue, we borrowed continuously and paid interest, crowding out funds for public welfare and development. Today, roughly Rs. 2.5 trillion go to debt service. As we have reduced that burden and can meet a larger share from revenue, confidence has grown that the economy is on a better trajectory.

¶ 04 On the external side, we must keep increasing foreign income—tourism, remittances, exports. When we build an export-led economy and expand production, import demand also rises; that is well understood. Recently, while we were successfully managing the economy, an external shock—the war in the Middle East—hit us. As a result, our import bill, especially for energy, rose significantly. Dollar demand increased. Over the past month to six weeks, we saw exchange market volatility, which the Central Bank has clearly described as temporary.

¶ 05 Sri Lanka’s exchange rate is no longer managed as in previous administrations. One of the main reasons for insolvency was suppressing Government revenue; another was forcibly holding the rate near Rs. 218, burning down reserves. That mistake will not be repeated—by legal principle and by discipline. We now let demand and supply determine the exchange rate, with the Central Bank intervening only to mitigate undue volatility. Intervention is now market-consistent—sometimes buying dollars, sometimes selling. Global developments influenced expectations; importers, exporters, and market participants made decisions based on where they thought the rate was headed, creating volatility. In response, we bring measures such as the present Rules.

¶ 06 Back in 2021, during the exchange crisis, various controls were imposed for years. One such measure required a portion of export proceeds to be converted into rupees within a set period. Given current temporary needs, the Central Bank is reintroducing a similar rule. This is not to harm exporters. It does not say “convert everything by the 10th of the next month.” After meeting all legitimate uses—importing raw materials, necessary dollar spending, paying dividends, foreign travel required for the business, debt service—any remaining surplus balance will be automatically converted by the banking system. The Bank expects this will make more dollars available to the market and address the temporary volatility. A measure removed in 2024 is being reintroduced as a short-term tool.

¶ 07 The Central Bank uses various tools to minimize volatility, as an independent institution. Previously, interest rates were hiked sharply, and over 100 import categories were banned—blunt measures. Now, we keep the economy flowing while making calibrated adjustments.

¶ 08 The Government and the Central Bank have ensured that, even amid crisis, all import-export activities and production continued, while expanding exports. Tourism in May recorded about a 9 percent increase over 2025. We consider the economy holistically. The Treasury is strengthening revenue. We will face the future with a stronger economy. The Government stands ready to support exporters, but please understand these are short-term needs.

¶ 09 Thank you.