CBSL Governor reveals what triggered worst economic crisis in Sri Lanka’s history

The Governor of the Central Bank of Sri Lanka (CBSL) Dr. Nandalal Weerasinghe says that huge tax cuts in 2019 and extensive money printing to settle debts triggered the worst economic crisis in the history of the country.

He also stated that the government of Sri Lanka and the Central Bank had already defaulted even before the debt standstill was announced.

He said the country has USD 7.6 billion in reserves, but when he took over as the central bank governor in April 2022 usable reserves had already plummeted to just USD 20 million.  

“Already the Central Bank and the Government had already defaulted. Even before we announced the debt standstill,” he said. 

The Governor stated this while addressing the dialogue held at the Parliament Complex yesterday (31) titled “The Current Economic Status and The Way Forward”.

This program was organized by the Parliament Secretariat in order to ensure the active participation of the Members of Parliament in parliamentary debates and to create an effective discourse on the current economic situation and the future economic path of the country.

Governor Weerasinghe further said that in the event of an economic crisis, the low-income groups should be protected first and therefore money should be allocated for social security networks to protect them.

He pointed out that if the economic difficulties faced by low-income groups increase, the such groups may take to the streets and because of this, riots may occur in the country. Therefore, he further pointed out that by dividing the economic burden between the high-income and low-income groups, the economy should be stabilized by controlling the discomfort caused to the low-income groups.

He also pointed out the need to increase government revenue by controlling borrowing. He also said that the current inflation should be controlled and the export income should be increased and further emphasized that it is important to manage the government income and expenditure.

Dr. Weerasinghe pointed out that by restricting imports, the cost of 2 billion last year was reduced to 1.3 billion this year said that it was possible to buy essential items such as medicine, mineral oil and gas. He explained that especially the current state income is about 1.2 billion and if it is possible to control the state expenditure by restricting the import of non-essential items, it will be important for the state income.

The CBSL Governor further stated that solving this crisis is something that cannot be done in two months and he believes that it will be required to bear these inconveniences at least until December of this year. He also explained that to avoid this crisis, the state revenue should be increased to at least 14-15%.

The Speaker of the Parliament Mahinda Yapa Abeywardana, Leader of the Opposition Sajith Premadasa, Chief Opposition Whip Lakshman Kiriella and many other Ministers and Members of Parliament participated in this dialogue.

Furthermore, officials of the Parliament including Mr. Dhammika Dasanayake, Chief of Staff and Deputy Secretary General Ms. Kushani Rohanadheera were also present at the event.