The challenge that we are having right  The country has a number of structural  now is to put in place policies that give  problems that have been amplified over  us sustained stabilisation of  the years by the large fiscal and trade  macroeconomic fundamentals in the  deficits, which are the core weaknesses  country, amidst uncertain global  of the Sri Lankan economy. Being a twin  conditions. deficit country increases vulnerability in  It is important to recognise that stabilising the economy after decades of  an uncertain and volatile global economic environment. fundamentally unstable macroeconomic  Unsustainable budget deficits boost  policies cannot be achieved without  excess and untenable demand in the  discipline. This will inevitably result in  economy. When there is excess demand,  some pain in the short-term. However,  it leads to inflationary pressures and  there is every possibility that a more  higher nominal interest rates in the  promising future can be realised  economy and there is also a higher  through the policies and programmes  propensity to import, given the  that are already in the pipeline. For this  limitations in domestic supply. That in  to happen, consensus must be built  turn, exerts pressure on the balance of  among politicians, policy makers and  payments and the exchange rate.
Banks’s enforcement powers for  As a priority, we expect to strengthen the regulatory framework pertaining to all financial institutions, including licensed banks, licensed finance  violations of the Act and the Directions issued under it. In this regard, we wish to seek views from the banking sector as well. companies (LFCs), specialised leasing  In line with these reforms, we intend to  companies (SLCs) and primary dealers. It  review all key regulations in the medium-  will further ensure the stability of the  term. In this regard, we will review key  financial sector by promoting the safety  Banking Act Directions, such as share  and soundness of those institutions to  ownership, foreign borrowings, and  face unforeseen challenges in the  corporate governance, and these will be  growing business environment. amended where necessary. In this regard, the Central Bank wishes to  In order to maintain financial stability in  implement the following policies in 2017  the country and in line with regulatory  and beyond. reforms, we have identified the need for  Since the last amendment to the existing Banking Act in 2006, the banking sector landscape has undergone a significant  Central Bank of Sri Lanka – ROAD MAP 2017  further strengthening of the supervisory function of the Central Bank.