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[music] [music] A very warm welcome. You're joining us here at Hyde Park on Adana 24 and wishing all of our viewers a happy new year. And as the dawn of 2026, we record our first program for the year. And to discuss, uh, Sri Lanka's way forward, the outlook for the country's economy, we've, uh, we're honored to have the governor of the Central Bank of Sri Lanka joining us on the first discussion of Atid Park on the 1st of January 2026.
>> Thank you for the invitation, and a very happy new year to you, Governor.
>> Thank you very much.
>> It has been a difficult time for Sri Lanka, uh, 2025, but I hope 2026, uh, you would have a better outlook for the country and have, uh, better prospects that you can share with us as we begin the program.
>> Yes, I think, uh, when you look at 2025, uh, last year, uh, throughout the year, the economy was doing much better than we expected. For example, until Q3, growth was very close to 5%. Q4 is still uncertain because of the impact of it. Diwat, the cyclone is not certain yet, but I hope it will be close. In my view, it will still be close to 5% or a little below last year. Previous year, we had close to 5%. So, before the cyclone, we had expectations from our Central Bank. We, we had expectations of the next several years, we have a potential to grow at least around 4 to 5%. That's in our estimate. So, what could be different in 2026 compared to what we thought earlier in terms of growth would be? That because of the cyclone, and if the government is going to spend money that was allocated for rebuilding, reconstruction, and recovery, and compensation, all these, uh, activities that will create additional economic activities during the year, especially this year and the next year, which means in terms of economic growth, both, it could even be higher than the 4 to 5% what we thought earlier. So, basically, what, what my personal opinion is that, uh, because of the reconstruction, rebuilding efforts, if those are spent properly, efficiently, within this given period, the growth could be even higher than 5%. Uh, if that is subject to all these conditions. So, it should be, because, for example, without this, this cyclone, earlier, the government had allocated, I think, about 1.4 trillion for public investments. Now, on top of that, they're going to add another 500 billion. So, that should create additional economic activities in terms of especially construction and some other economic activities that can create economic growth in terms of that. But there could be other sides. For example, if the government is going to spend that much more money, and there is, there's going to be a much more demand for certain goods and services, for example, labor, construction, the materials, excess demand could create a kind of a price impact also.
>> Okay.
>> That is going to create excess demand. Prices of those materials, some prices can also go up. That can reflect in the inflation to a certain extent. But in our view, inflation was anyway running around 2%. Yet, still, our expectation from our point of view, expected inflation was going to reach around 5%. That's our target, some Q3, third quarter of 2026. So, that probably we might reach that a little earlier than what we thought because of the higher demand factoring into inflation for 2026. The third factor that could have an impact on the foreign exchange situation, for example, when the government spends more in rupees, that's already they have money in the in the accounts. When they spend that money for recons, rebuilding, that could create some additional demand for certain imports, like what we had last year for motoral imports. This year, there could be additional demand for imports in terms of, for example, construction cement, steel, building materials, or construction materials, and certain food. All these things that would have an additional demand for foreign exchange to import all these raw materials. So, to offset that, we need to ensure that we also earn a little bit more foreign exchange through exports, remittances, and tourism, as well as if the government can mobilize some more foreign exchange in terms of loans and grants to support this recovery, recovery activities, that can offset and balance the situation. So, for example, so that all things will have to happen. These are the possible impacts in terms of outlook on the growth, inflation, and also foreign exchange resource.
>> And the imports, exports, and the imports. So, there could be those impacts, but it, we can still, it's too early for us to factor everything. There are some uncertainties, or the timing that's going to take to implement all the things, and the procurement process could be a little delayed than what we think. So, as a result, it's still too early, but there should be some impact on both sides.
Governor, you mentioned that, um, post cyclone Dittowa and the damages, as Sri Lanka looks to rebuild, there will be spending, uh, reallocations of these, uh, uh, budgets, and you mentioned that it should be wisely and efficiently spent. What is the mandate of the Central Bank to oversee, uh, any fiscal spending here?
>> No, fiscal spending, the whole responsibility is with the parliament. I don't think we have not, no mandate at all. That's why independence of monetary policy and fiscal policy, obviously, we have, we had to have strong coordination between fiscal policy and monetary policy. That is to understand the impact of high spending by fiscal authorities on the balance of payment, inflation, as I said, on the monetary policy. But for the government to spend that amount of additional money allocated through the parliament is, so parliament oversees as a public finance authority by the constitution, is a parliament. Parliament has the oversight. Uh, that's where computer public finance and the parliament, time to time, they need approvals, all these things by the parliament, not by the Central Bank.
And, um, the Central Bank advises the government on the, uh, way forward as we look at 2026 and beyond. We've been talking about, uh, damaged, uh, damages to not just houses, but large-scale damages to businesses, small and medium-scale enterprises, um, those who find it difficult to even go in for a loan to recover. Uh, and it's in the interest of the entire economy that they rebuild. So, what's the advice of the Central Bank here, Governor?
>> Now, what I, from our side, we have already issued a circular, uh, to the bank sector, uh, for especially businesses that have been affected as a result of the cyclone. Then they can, I think, so government, uh, compensation is, is rather, I don't think any government, this is tax money. Government cannot fully compensate for the whole damage of businesses. So, there are several ways that can be compensated. One is government compensation, giving some composite. Second one, important one is, say, if there are insurance, it's a very good instrument. Other than that, those two instruments, is other instruments which can provide more resources is from the bank sector, uh, through lending. So, for that, I think what we have issued a circular is that businesses that have been affected, uh, with this cyclone, and if they find it difficult to service their already loan obligations, we've given them a 3 to 6 months moratorium, and they have to make an application to the bank and ask for time for first settlement of the loans, excusing obligations. Uh, second part is for them to restart the business. Working capital, they can go to a bank and ask for a new loan for a working capital for them to start the business. For that also, we have imposed a cap based on the current market, below market, current market, say 11%. We said new loans should be around below maximum 9%. So, that is the amount of resources available for businesses for their recovery efforts from the banking side. Those are, we also remember when banks are giving the loans, those are deposits' money.
>> They have to recover that money. So, they have to ensure you give the loan, give them a, a concession, give them a period for them to recover. Then, after that, they should be able to recover money back and pay it consistently. And there are a lot of other conditions. We say, don't impose extra penalties, don't impose some of the additional interest charges. So, we have issued that is from our side.
>> In addition, government has already basically have a strong compens, good compensation. I think I know, I'm sure, you know the details of this already published, approved by the parliament, and it was announced. So, that's the second part. And third part, as I said, the insurance recovery.
>> Uh, Governor, how would you assess the resilience of the country's economy as we move forward? Uh, we understand that there has been a full assessment of the damages caused, but moving forward, after multiple shocks, the economy has faced, and, um, several efforts to rebuild and recover, uh, it felt at one point that the economy went back to, um, where we were.
>> Yeah, I think that's, that's an important point. So, uh, for any economy, because this kind of, uh, crisis or events, so, this climate interest can happen anytime in the future. So, the only way to prepare for this kind of events is to keep buffers ready for us to be used in an event of this kind of a nature. So, this, this is the best example I can tell you with the first example during this period, because the government earned a lot more revenue than what was expected during the last year, and they built a buffer of 1 trillion rupees in the Ministry of Finance with two state banks as a cash buffer.
>> Mhm.
>> So, that was a good buffer that they built. So, that can be used now to recover and spend this, this amount, at least 500 billion out of this 1 trillion buffer can be used to support the economy for recovery efforts. For example, imagine a situation if we did not have that buffer, then we are, we would be in a very difficult, uh, position. This is what happened in 2022 during the crisis. We did not have any buffer in terms of fiscal, in terms of external resources, resource, in terms of inflation or monetary policy. So, we had lost all the external resource, external buffers, the domestic buffers, fiscal buffers, in terms of that time, government was trying to close to 1 trillion deficit, odd, with the two state banks. Now, 1 trillion surplus with state banks. And in terms of the, the foreign exchange resource, that time we had almost no usable resource. Now, we have six, over 6 billion resources. These are the buffers. So, this is the only way any country to prepare for this kind of event. You should ensure that we keep building this, this kind of a savings. If, as a household, if you're going to have an unexpected event in your family, if you didn't have savings in your, in your, in your bank, so, you, you go, you have to go through a difficult cycle. But if you have money, then you spend that money, satisfy, even manage the economy. Key buffers are fiscal buffers in terms of the surpluses, revenue, and the surpluses from the country's point of view for reserves, and from the monetary policy point of view, interest rates, that low interest rates, maintain low interest rates is a buffer in, in case that's needed. We have a space to even further reduce interest rates. So, we are keeping that buffer also in an event if we are to support the economy from multiple sides. So, I don't think we need, this event, we don't need that because although we have seen the damage, value of the damage of the assets is about $4 billion, but that is the value of the asset that came down because of the destruction. But in terms of economic activity, because of this destruction, there has to be a much economic activity creating in the economy in the recovery and rebuilding effects.
>> That will add more value to the economy going forward. Uh, does this mean the Sri Lankan economy is well prepared and well, uh, stocked up, if I may say, to face any eventuality? And going forward, Governor, since Sri Lanka has faced shocks like these, what kind of policy direction or policy, um, turn would you advise the government to take so that Sri Lanka prepares ahead for not just, uh, cyclones or any weather-induced impacts, but other possible crises?
>> This, uh, yeah, I think this is a point again. I think this, what I say, this time we were better prepared in terms of buffers we had. That's why the impact could be minimal, minimal in terms of, uh, there for the garden of fiscal, monetary. So, but I, I wouldn't say that is more than sufficient, uh, for the future. That's why it's important for us to keep building these buffers going forward in all the areas. That's why we should not be complacent. Because you're able to meet this shock, this point, what will happen if there's another shock? This current buffers may not be sufficient. That's why we need to keep building. That's why for, for some, this year, from the reserve, for example, 6.7 billion kind of estimate, we need to build another about up to 8 billion by end of this, end of this year. Government also needs to keep building their, their savings with the banks as fiscal cash buffer, so that they can use additional that amount of money. Continue to implement the proper prudent fiscal consolidation as we plan and implement to proper prudent monetary policy in terms of managing inflation. Implement the proper external sector policies so that we can build resource and build more buffers in terms of in stocks. Say, in stock, any shock can be in the future, can be a pandemic, can be geopolitical issue, can be a war, can be a price side, anything can happen. Only way for us to prepare is to have this purpose right. That's why we always talking about build resource up to 6 billion, 8 billion, 9 billion, 10 billion going forward, and maintain fiscal, prime minister, plus 3.3, maintain the sustainability without falling into a debt, difficult debt servicing situations, and have a proper prudent monetary policy and curtail, curtail the inflation, maintain it around at least 5%. It's a proper prudent policies, both fiscal and monetary, and structural. And similarly, there has to be other structural reforms, um, uh, uh, economic recovery, and also targets that, uh, not just the Central Bank, but the entire economy you have set for, uh, going forward. How is this shaping out? Governor, are we on track as planned, or has there been a deterrence, and what, uh, measures have been taken to catch up on that front?
>> No, so far, I see is, is a kind of a path, is, is very clear. We are moving in, in the direction that since the crisis, the direction we have been moving, we have, we have moving in the same direction. I don't see a deviation from all these prudent macro policies,
>> and also structural reforms. I don't see that that's changing. But anytime, any government can change their policies. That's, that's the right of the government elected by the people, the right to change policies. But I hope that the right policies are right policies. I don't think there are two alternatives. This is where people need to ensure the elected government implement policy in the same direction. And obviously, you can have changes here and there to, for example, if something unnecessary happened, when this happened, it has to be changed the course a little bit.
>> It had to spend money that's saved for this purpose. Those things can happen. Those changes should take place to meet and rebuild. But the direction of travel should be the same. That should not be changed for us to ensure that what you're talking about, long-term economic growth, as well as increasing living standards of people. That direction will have to be moving in the same direction without much change. I don't see a risk right now. I, no one has expressed, uh, you know, there has to be, there's another different alternative, so different path. I don't see that.
>> Now, uh, when we talk about the private sector, it's very important that we discuss also the outlook for 2026, um, the, the economy's direction, but at the same time, uh, how this private sector, the, the conducive environment that's created, is going to fare well, uh, for the economy's private entities. Um, are we going to look at any new changes to, uh, how, uh, how, how economic activity, or how, how the Central Bank's focus on the private sector is going to be?
>> I think, uh, Central Bank, I think in the next, next week, on the 8th of January, we are going to announce our policy agenda, kind of roadmap for 2026. There, we will explain in detail from our entropy point of view, and several point of view, what are we going to do for this year. That, I think, once that that is announced, we can have another discussion. But from the private sector point of, what I see, what my request for the private sector is to look for opportunities coming up. For example, when the government announces that they're going to spend additional 500 billion in addition to 1.44 trillion for public investments, which means that should create a lot of new opportunities for the private sector in certain sectors like construction, road, bridges, all these things. There will be new activities. Private sector should be ready to move in and support those additional activities because resources are, resources are available. Those opportunities for the private sector to take. That's one area. That's only out of this thing. But more than the government activities, I would see a lot of other opportunities. For example, potential for tourists up. Now, we saw this last year was the highest number of tourist arrivals. I see that will continue this year also. That will create more opportunities for sector side, tourism, logistics. Um, and also we need to explore more opportunities to diversify exports. Those are the areas that, even IT technology, AI kind of technologies, and also digitalization. Those are the opportunities already government has announced. So, private sector should be looking for opportunities in those priority areas and get ready to use those opportunities and create business opportunities and use those opportunities to create employment, create business for themselves, and create wealth for themselves. That is how the country would grow. So, I think again, other part is that even the government side, there are government-owned corporations, for example, petroleum, the Sri Lankan Airlines, uh, the RDA, all these institutions also, those are state-owned enterprises that could create opportunities for the businesses. So, when this is, this expanding, obviously, there will be a lot of opportunities. For example, now we, we know the renewal energy is one sector. The logistics and portray is one sector. Tourism is another sector. Then looking for diverse export markets in Europe, or challenges in the US market, or try to, basically link up with the other supply chains in Asia. Those are the opportunities. Private sector should be focusing and trying to work out. And overall macro environment, business environment is much more stable now compared to we have been talking a lot. The last two years, the situation now is much more stable environment from the macro point of view. Now, it's up to the private sector to take this stable situation. Stability is the foundation for growth. Stability is the foundation for economic for sector as well. So, then they don't have to worry about, worry too much about stability. Now, they have to take this, create opportunities created by the stability to support themselves for the growth in the future.
>> Um, as we move forward, do you think, uh, as many say, Sri Lanka is too reliant on certain traditional sectors, whether it's, uh, exports of certain traditional, um, basket of traditional items, and then we're too reliant on tourism, that is also another concern. So, as we look to expand, Governor, what are really the options here? Is there, uh, room for the private sector to move for more investments to come? How would you advise, uh, other departments, interlinked departments, and entities to work so that foreign direct investment inflow is not deterred? It's basically, you know, there are opportunities in several areas.
>> It's up to us to, or even relevant agencies to provide, make it easier for people to, especially for investment to come in those areas. We should be able to open up our sectors. I think what I believe, certainly, the economy can function better if you open up activities for foreign investors,
>> in all the areas. I, what I hear sometimes, there are concerns of opening certain sectors to the foreigners. That should not be the kind of a concern where if you open up opportunities for investors, they will come and invest here, create jobs, create employments, create, make, uh, life more, more demand for goods and services, more locally, and diversify. As you said, you're right, the even export sectors, we, we have been focusing on very limited areas. We should diversify that more into, in my view, we have potential more into export of services, goods also. There, there has to be a high-end niche specialized product. That's where our advantage. We are not a country where we can compete with Bangladesh or Vietnam as a low-cost destination. We are a high-end competitive and technology-driven sector in all the areas. That's why we need to compete, and that's why we need to promote. That's those are the areas we need to open up for foreign investment,
>> so that they will come and, uh, invest and create business opportunities for themselves as well as for the country. So, these are the areas in my view. Those, those will take some time. I don't think those are not something that can happen overnight, within one year, two years.
>> But there has to be consistent policies.
>> Should be made much more transparent, easier to do business, have systems, open, less corruption, and more, more efficient public service delivery, and let them make it easier to come in. Even tourism sector, I have potential of tourism, but you need to manage the tourism in a sustainable way. In my view, I mean, I'm not an expert on tour sector. I'm sure there are some ministries. I think in ministries who can focus on diversify all these areas. And there are other ministries who can work on the tea, rubber, coconut, how to add more value there. Industries can add more value into other supply chains. How we can link up with the other markets with Asia or other areas. If there are in US market, we can have the markets. You negotiate to negotiate free trade agreements with those markets. That's solving. If you compare country like Vietnam, it has grown rapidly in terms of exports. I hear they have, they had already about 18 or 20 free agreements with with other countries. We have only three or four. So, that's why that's how these countries have grown because they have opened up the markets. They have more free trade than, you know, trade agreements and economic agreements with other countries. So, that's how they increase market access. We can't have both. We can't have a market closed at the same time, can't expect exports and others to grow and capture the global market. So, we need to go in that direction in my view. That's how we can grow.
Um, from, uh, trade, external sector, and global integration. I also want to discuss that further. But coming back, before we go in for a short break, about the, the general public, the people who feel the cost of living. You mentioned that earlier. But, uh, how would the Central Bank's policies going forward in 2026, uh, would, would look at, uh, addressing any citizens or households' purchasing power that is being, uh, affected disproportionately?
>> Now, you see, Central Bank policies are basically our key mandate is price stability, which is maintaining low and stable inflation. That is the only way, and this is the only way that we can support and is the cost of living by controlling inflation. Cost of living means at what rate the price levels are going up, that increases the cost of living. But for an economy, what we say inflation 5% means cost of living will have to go up around. Right now, it's 2%. That is a sustainable increase in cost of living, or over, or a period of time.
>> Or since the crisis, we have 70% at some point. Now, it's only 0 to 1 to 2%. Now, maximum could be 5%. The Central Bank mandate is to provide that mandate, deliver that mandate to maintain low and stable inflation. But how inflation means still cost of living going up? M. This is not, I mean, there is a kind of misperception that cost of living can be brought down. That is not correct. Prices, once prices go up, it's difficult to bring it down on a long-term basis. Short-term, because of supply and demand conditions, drought, and, you know, good harvest, some products' prices can go up and down in the short term. But in the medium to long term, prices will not come down. Prices will be increasing at a steady pace, about 2, 3, or 5%. Then, how do you question how people basically manage that situation?
>> Only way for people by increasing the income, increasing the economic activities. That's, that's what it is. It's about GDP growth. GDP growing at 5% means economic value of economic activities are growing by 5% every year.
>> Which means cost of living going up 5% means the, if the incomes are going up by 5%, that should compensate. So, the Central Bank wouldn't have policies for the redistribution policy. Central Bank is not the, we don't have mandate. That's why government fiscal policy, people who earn more, they have the right to collect more taxes from people who earn more and support people who earn less through distribution, through taxation. That's the only way to address certain sections of the community if they are suffering from cost of living.
>> Pakistan, that is one of the reasons why this, uh, aim.
>> So, poor people, as you said, can't afford this cost of living. This is the reason why government is using tax-based money to support that community, at least support until they come out of this poverty level, support them with a system like cash plans or cash support. That's how that can be addressed. But others who are above the poverty line, it's only by themselves, by growing themselves. Licenses should grow by themselves and earn high income.
>> Individuals will have to work more and earn more so that they can compensate for higher cost of living. Cost of living will anyway be increasing. Only way to address that is that your your income should also be facing at similar levels so that there will be compensation. So, that's how any economy. This is an important point because a lot of people think cost of living can be brought down, you know, prices.
>> In the long term, you can't.
>> Long term, no country unless you have deflation, which means Japan has this situation for 20, 30 years. Deflation, means prices are coming down on a steady basis, 20, 30 years. That's why economy grows by only 1 to 2% for a long period. That's not good for economic growth. That will not increase the incomes of people of that country, you know, that's not good. So, [clears throat] this is why inflation is needed, smaller for 3 to 4, 5%. And at the same time, economy must grow. People's income must be growing to meet that additional increase in cost of living on a sustained basis, on a long-term basis.
>> Well, on that note, I think it's time we take a short break. We're discussing with the Governor of the Central Bank of Sri Lanka whether, uh, Sri Lanka can protect hard-won stability and commit to long-term, uh, reform. We'll be right back after this short break. [music] [music]
Welcome back. You're in conversation with the Governor of the Central Bank of Sri Lanka, Dr. Nandal Vira Singh. We're talking about, uh, long-term consequences for Sri Lanka if, uh, structural reforms don't take shape right now, as we begin 2026 with the first discussion of the Central Bank's monetary policy and way forward for 2026. We, we spoke about a number of areas that you suggested should be spurred in order to create that kind of activity. Uh, but Governor, based on Central Bank data and statistics, do you suggest expanding the social safety net, or is there any other way to bring more those who are more vulnerable into, uh, into the social safety net, or is there a group that has to be, um, targeted to bring in more tax revenue into the economy?
>> No, social safety, obviously, I mean, encourage should be targeted. It should be given to people who deserve that support. So, that, that's a difficult thing, you know, when you have this kind of system, social safety net, unless you target the people who deserve that support, or especially low-income people who can't live out of their income. People pulling on poverty, especially out of the crisis, a lot of people, very poverty rate was single digit, and it came down to, it increased to about 20, 25% based on World Bank data. So, because a large number of people are now, large number compared to say, in the poverty. So, obviously, they should be targeted. But it should not be a continuous support forever. So, this support, targets should be given to people to come out of the poverty. Give them, give them opportunity to join and join economic activities and make themselves empowered so that they can earn themselves, can stand by by themselves to come out of this poverty. This has to be a temporary, well-targeted for a short period, and within that period, they should be empowered to come out of this poverty by creating a lot of activities.
>> That is what any government should do. So, I'm sure there's this, even assume program has this, uh, kind of a targeted, uh, mechanism. It has to be implemented properly. So, our problem is that programs are there, there are procedures are there, whether those are properly implemented or not is a question. If those are properly implemented, then obviously these supports are taxpayers' money, but mindful, someone else is paying for this support.
>> Mhm.
>> This is always what I say. Government, they don't have money. Government responses to collect money from someone else's and this give, give to someone else. Collect money from taxpayers and use that money properly, efficiently, and prudently to create economic activities. Support people who need that support. That's someone else's money. So, only there has to be a good accountability, responsibility of using taxpayers' money for any expenditure by the government.
I want to also take your attention to the IMF. We've been discussing much about, uh, the Extended Fund Facility program. But, uh, just recently, we saw the, uh, approval of about 206 million, uh, dollars of Rapid Financing and Instrument to help Sri [snorts] Lanka, uh, elevate the fiscal pressures as a result of cyclone Dittowa. So, how is this going to really change the face of the IMF program, our, uh, commitments to the IMF EFF?
>> And, uh, how is, what is the Central Bank's role also, uh, in terms of the spending and other governance aspects?
>> Now, this, this two instruments, one is RFI, is a one that that was used, and that's usually used in this kind of situation. Has got Rapid Financial Instrument is designed by the IMF to support member countries, uh, in, in an event of this kind of unexpected event. So, that is that money comes in without any conditions attached.
>> No conditions, no commitment. 200 million was given to the government through the Central Bank to support this activity. That's, that's kind of a medium loan, 3.5, 3.5 years loan by the, to RFI. But the existing Extended Fund Facility will remain. Why that was a bit postponed with the completion of the fifth review was postponed because, uh, when this was about to complete, the, the fifth review was about to complete on the 15th of December, this happened about, uh, two weeks before. So, as a result, then the government had to change their plan for 2026 because of this event. As a result, the earlier expectation, fifth review would be completed within the month of December with the budget approved in the parliament, as we agreed with the earlier commitments. But now the requirement had been changed. As a result, this also will have to be revised. There's no time for fifth review to be completed to have a proper assessment, have a proper approval from the parliament to spend that point next year. That's why it was completion of fifth review was postponed to early next year. And as a result, in between, RFI rep instrument is an easy instrument.
>> Mhm.
>> They can deploy it within two weeks' time, two weeks' period. Those that was brought in as additional 200 million. This is in addition to, uh, EFF facility that was already committed. So, then what next step would be to complete the fifth review based on the new budget for 2026, and that process will take place early next week. Then we'll go back to the normal cycle of EFF, uh, next fifth review. Then there are eight reviews to be completed, three more years. So, after the next year, then that program can be completed, and we can get full disbursement under the EFF. And in addition, this 200 million is additional support for the, for the data. And also there could be a possibility of enhanced that that facility also if the, you know, this IMF program also, we have to understand, is not fixed for four years.
>> Mhm.
>> Each and every review, there are negotiations taking place, there are reviews taking place, there are amendments and changes taking place. So, even if you look at the fifth review that's going to be completed early this year, would be different from the fifth review that was going to be completed on 15th of December. What would be the difference?
>> Difference between, so, if that cost approved in fifth review in December 15th, that review did not have the additional 500 billion spending for this year for the cyclone recovery. So, this, this one, the new review that we are going to negotiate, government and IMF is going to negotiate with the government will have additional allocation for, uh, rebuilding and reconstruction of 500 billion for 2026.
>> Mhm.
>> And even next year, there could be some, uh, spending within the parameters of the program will be in next year. That's why that's there, review by review, there are situation terms and conditions and commitments have been changed. That should be suited for the circumstances. This is why some people think IMF, why, why do you want to go to the IMF? Why do you want to commit? And why don't you want to renegotiate this? I mean, there always, there is a possibility of review and renegotiate this. Example is that review that was going to be completed last year, 15th December. If that will be completed within the first quarter of this year, once you look at the difference, it will be totally different. There will be new review, new program, or or revised program for 2026 will be approved by the executive board in consultation with the Sri Lankan government and the Central Bank.
>> When are we expecting the, uh, the review, Governor?
>> There'll be a mission coming to discuss parameters in, um, in month of January, I think about 20th of this period, they'll be here. And once they are here, we are trying to basically understand and discuss with them what are the new requirements for for this year, and how those are going to be spent, what are the, as a result of those impacts, what will be the new reserve target, what will be the new fiscal policy, what new revenue target, all will be renegotiated, uh, during at the month of January to February. Then it will need another 3, 4 weeks to go to the board and get the final approval. So, that's kind of a timeline, roughly.
>> Yes. Um, the next question is external debt. Um, we've been talking about pressures on the economy. We've been talking about 2027 and beyond 2028, uh, repayments. But now, as you mentioned, it's a case-by-case situation, and now we've faced a new, um, uh, natural disaster, post-disaster period. Um, what, what kind of, uh, outlook do you see here in terms of debt repayment? Uh, we've heard many international economies also calling for an immediate halt to Sri Lanka's, uh, external debt repayments, warning that continued payments could push the country back into a financial crisis. Are you concerned?
>> This is completely a bad idea. I say this is, I also say, I mean, they are also international academics and economists. Those have never been practiced and run a government, run policy. That's a difference between academic looking at the papers and making a statement versus some people who are running the government, running the Central Banks and government. Uh, a better understanding of those situations are different. That's why this idea of, I mean, first point I want to make here is that, uh, with this cyclone impact, because the government has clearly announced there's no new debt will be raised to finance that, it has no impact on the sustainability analysis. If that's going to raise additional debt as a result of this thing, then obviously there has to be even significant marginal impact on the sustainable analysis, PSA. So, why we research all the debt, uh, debt obligation of the government is to restore debt sustainability of Sri Lankan government. That has already been restored. That's why we are making the service payments on an annual basis. This year, government made about $4 billion US worth of foreign currency, 3 to 3.5, maximum 4 billion until 2032. Too, that that won't be changed. So, what is the reason for us to justify for us to ask for another restructuring if PSA is not going to be affected? And there, it doesn't make any sense to anyone. Those who understand the subject properly, you have to ask for, if you are in a position that you are not being able to meet the service obligation. That is what happened in 2022. We did not have resources. Government didn't have revenues to service even domestic debt. As a result, government had to ask for their restructuring because that was not sustainable. IMF assessed Sri Lanka's government debt was not sustainable. So, no one was willing to even give a loan to Sri Lankan government. So, debt was not sustainable. That's why we, we were negotiating a good restructuring program, restore the debt sustainability. And with this impact of this, this cyclone, government is going to use the savings they have without raising new debt. There will be no significant impact on the DSA. That's the first principle. Without having impact on DSA sustainability, what is the basis for us to ask for restructuring? There's no basis at all. If we are going to ask for this is something like, so, you got a loan from the bank, and you had the impact from the disaster, your part of the house was damaged. So, then you have a bank loan, then this government give you a support, compensation to rebuild your part of that. Can you go to the bank and ask, you know, please give me another loan? Does it make any sense?
>> So, if you, if you, if you had saved some money to build your house, and what is the point the bank saying that we'll give you another support or we write off your debt? Doesn't make any sense. If you are, you come to a situation, you are not in a position to repay your debt as a result of damage, you didn't have any savings to build that house again, then obviously bank will have to give them, give you restructuring. That's what we ask from the businesses to do that. This same country is a government saying they are not going to raise any additional debt for this done. They are going to use savings that was generated through through revenues. Then there's no reason for us to go to the creditors say that, you know, we are not in a position to service this debt. It's so obligation same as what was earlier. So, what is just this, this group? I can remember this, this is the same group who asking during our negotiations to negotiate to not to pay any debts, you know. If that was a position in that time, Sri Lanka would never ever be able to go out and raise any debt for development money in the future. I think debt, raising debt is not a bad thing. Any country to prosper, any business will prosper, any business grow, you need to borrow. The prudent thing is to you borrow, invest prudently, and generate income for for you to further grow. If you borrow and you know, waste your money, then no one will give you money again. That is not prudent borrowing. Borrowing is not a bad thing. You, any country or any business should borrow to grow. If you borrow and waste your money, then no one will give you again money. There's no point of asking for restructuring. You know, no one will even restructure that. That is the point, and this is a bad idea. That's, I don't think any sensible government should even talk about this.
>> Mhm.
>> No recurring, again, recurring means, I mean, I don't think any, any case when creditors point of look at, they look at whether we are, we, whether we have capacity to repay. When you say we have $6 billion, when you say we are in fiscal consolidation, when you say inflation control, what is the reason for us to ask for debt, you know, debt forgiveness or debt sucking again? That means we are going back to lower rating. It will take another 3, 4 years for us to complete the negotiations, and we will go back to a worse situation than what the progress we have been making last two, three years. That's going to be, I think it's not the group. I don't know what the intentions are. To me, intentions are not to help the country.
>> Intentions are basically with the intention of going back to a worse situation than what we are going forward.
>> In the interest of time, Governor, I just have one question, but a few areas. Uh, you mentioned external debt. Uh, I want to know whether we are in a comfortable space to manage, um, our, our debt, and whether Sri Lanka has been successful in building credit to trust going forward. Um, and also, um, the, the policy space, monetary policy space, as well as the policy space in the country. How conducive is it going to be in 2026 as we look at, uh, the necessary structural reforms for the economy?
>> No, this debt situation, I want to make it very clear. There's a lot of talk about 2028, you know, we have to pay a lot more debt, and there will be another restructuring, another bank. There's a whole kind of a misperception and misunderstanding, maybe for not being able to understand properly, or have understanding, but trying to, you know, mislead people. So, the whole purpose of government's year obligations that was completed in 2023, 2024, and now the last stage of even Sri Lankan Airlines was a small part that was left has already been now almost finalized with that whole transition process would be fully complete.
>> Because of that, this up to now, almost 90% completed. We were now came out of the default category of ratings, from triple C plus. Now, next step, I would expect soon, our rating will go back to B grade from triple C to next is a one notch is a B. That is the direction we need to move. I think that fully completion of process going forward, and building our resource continuously from 6 billion, 7 to 8 billion, and our resource obligation currently for next 10 years, this around annual basis, 2.75, 3 billion, 3.25. Even after restarting the pay, small capital payments from 2028 onwards, it will be 4 billion or 4.2, 2 billion maximum annual basis. If you build resource up to 10 billion or 10, 12, 13 billion, for us to service annual four, five billion is not a situation, not a difficult situation, not a situation. That's why I am confidently say we move in the same direction that the way that we have been moving last years after the crisis, and no concern at all for the debt service payments of the government, external debt service pay, or even diversity service payments. That's not a concern. So, there's no, no one should be worried about having other trees occurring or another default in the next 2, 3 years' time, if we move in the right direction. Obviously, if you change the course, there are a lot of other risks. That's why subject to that, we can easily meet those debt obligations. So, for that, we need to build, continue with the fiscal consolidation part. We need to build continuously the external resource, interest of resource. We need to maintain inflation, fiscal monetary policy space, and maintain inflation, and maintain low interest rates, maintain a stable exchange rate, this competitive and also flexible market determined. As long as those key principles are in place, I'm not at all, not at all concerned about our country's government ability to meet service obligation beyond 2028, until even the next 10 years. 2032 is the period that we have restructured government obligations.
Thank you, Governor, for your time, uh, to, to, uh, make time for this very important national conversation. And I think on that note, we set the tone for 2026 going forward. We look forward to talking to you as, uh, the outlook, Central Bank outlook for 2026 is announced too. But most importantly, thank you very much on the 1st of January 2026 for allocating your time. Thank you for the interest in.
>> Well, we were in conversation with the Governor of the Central Bank of Sri Lanka, Dr. Nandal Vira Singh, talking about Sri Lanka's hard-won gains, long-term stability, and how the next phase of development and reform will take shape as we step into year 2026. Thank you for joining us here at Hyde Park. Have a pleasant evening and a great year ahead. Good night. Heat. Heat. [music] [music]