Sri Lanka remains in a comparatively stronger position to manage external economic shocks, despite rising global uncertainty and higher energy prices linked to the ongoing Middle East crisis, Central Bank Governor Dr. Nandalal Weerasinghe said.
He noted that while developments in the Middle East are beyond the control of any single country, Sri Lanka will continue to respond cautiously based on how global conditions evolve.
Addressing concerns over key foreign inflows, the Governor said available data does not point to a widespread decline. However, he acknowledged a clear drop in tourism, with arrivals falling by around 17% so far this year. Despite strong performance in the first two months, total tourism earnings declined by 4.9% year-on-year to $730.3 million.
In contrast, workers’ remittances the country’s largest source of foreign exchange have remained strong. Inflows in February rose by 33% compared to a year earlier, reaching $729 million, marking the second consecutive month of record levels. Total remittances for the first two months of 2026 exceeded $1.48 billion, reflecting a 32% increase year-on-year and the highest recorded for that period.
Dr. Weerasinghe noted that there is no evidence of a decline in remittances so far, adding that overseas workers may even increase transfers during uncertain times to support their families. He also said there are no signs of a significant return of Sri Lankan workers from the Middle East, nor any official advisories urging them to do so.
The Governor emphasized that Sri Lanka continues to operate a flexible exchange rate system under an inflation-targeting framework, where the currency is guided by market forces and macroeconomic conditions. He added that intervention would only occur to address excessive volatility.
Reflecting on inflation trends, he pointed out that the country had previously experienced inflation levels as high as 70% in September 2022. Therefore, a return to around 5% inflation , possibly by the second quarter would not pose a major threat to stability. He also noted that the current projection of around 2% inflation already factors in recent energy price increases and related impacts.
Drawing comparisons with the 2008 global financial crisis, when oil prices surged above $145 per barrel and domestic inflation reached 28%, Dr. Weerasinghe said Sri Lanka had managed to navigate such challenges in the past.
Although global oil prices have recently risen due to geopolitical tensions, he pointed to early signs of easing in petroleum markets, while cautioning that volatility remains high.
“If global uncertainty is short-lived, Sri Lanka should be able to absorb the impact without major disruption. However, a prolonged crisis may require adjustments to inflation forecasts, fiscal policy, and broader economic strategies,” he said.
He added that the Central Bank is closely monitoring developments, while the Government has already taken steps to manage energy demand, which could help limit inflationary pressures.
Stressing the importance of preparedness, the Governor said authorities would continue taking necessary measures to shield the economy from external shocks.
He also underscored that long-term structural reforms , including in labour, land, banking, fiscal management, and anti-corruption , must continue regardless of global conditions.
“These reforms are essential and should move forward as planned, irrespective of any crisis,” he said, adding that building economic buffers in advance remains key to reducing vulnerability to future shocks.
Reaffirming that global uncertainties are difficult to predict, Dr. Weerasinghe said the country’s current policy direction remains appropriate under the circumstances.
