The responsibility to increase Sri Lanka’s GDP growth potential rests with the elected parliament, as the Central Bank of Sri Lanka is only tasked with the mandate of maintaining growth closer to expectations, through using monetary policy, Central Bank of Sri Lanka Governor Dr Nandalal Weerasinghe said, speaking to the Committee on Public Finance recently (5).

Responding to a query levelled at him regarding the CBSL’s scope on enhancing growth, Dr Weerasinghe said: “The Central Bank cannot enhance the potential of the growth, what it can only do is make the country grow at its potential. Our ability through monetary policy is to ensure that growth is around that potential.”

The International Monetary Fund (IMF) projects that Sri Lanka’s real GDP growth is to reach 4.0% in 2026, down from the previously recorded 5.0% in 2025, despite the headwinds of Cyclone Ditwah and global trade disruptions that Sri Lanka’s external sector was exposed to.

The Central Bank of Sri Lanka (CBSL) projects Sri Lanka’s real GDP growth for 2026 to be in the 4–5% range. In September, the IMF Staff in a statement on the conclusion of its visit to Sri Lanka noted that in order for Sri Lanka to shift from stabilisation to transformation, it must sustain its momentum through structural reforms to reduce poverty and lift living standards through strong and inclusive growth.

“For potential [growth] to go up to 6–7%, you have to have other reforms that can expand the capacity for the country to grow. Those are the trade reforms, investment and custom reforms, ease of doing business, land reforms, labour reforms and a number of other reforms. Those cannot be done by the Central Bank. That’s why the elected authority here is to do all these reforms,” Dr Weerasinghe informed the committee.

According to him, Sri Lanka’s average growth between 1977 to present is 4.4%. “The country’s economic growth depends on a lot of other factors. The Central Bank cannot enhance the potential of the growth, what it can only do is make the country grow at its potential.”

Speaking of necessary reforms to enhance growth, Dr Weerasinghe noted that the CBSL may avail of its monetary policy to manage that growth stays within expectations: “If potential goes up to 7%, our responsibility is to ensure the country is growing around that 7%. If it goes below, use monetary policy and push that up. If it goes over, to tighten monetary policy and bring that back to the potential of 7% if it is potential growth. All the reforms are parliamentary responsibility.”

Professor of Economics and CBSL Monetary Policy Board Member Priyanga Dunusinghe said that if Sri Lanka is to prioritise long-term, sustained growth, it must move away from its practice of making substantial capital injections into sectors that do not yield long-term outcomes.

“We need to focus on areas mainly on innovation, then into human capital, productivity enhancements and competition. Those include liberalising trade, making an environment conducive for investment; reforms into the labour market and reforms into a number of other areas. Only then can we tap the growth potential.”

“If you look at the determinants of long-term growth of around 20 years, those involve productivity, human capital formation, trade openness, and so on and so forth. Unless we address impediments in those areas, capital injections by the Government may enable us to increase the growth rate at 5–6% in the short run, but such growth will not be sustainable. To sustain the growth rate, that must come from productivity, technology, human capital etc.”

“Artificially we can inject some money into the economy for some growth, but you cannot sustain that. It only ends up with a disaster in the long term, which is similar to what we have witnessed,” he emphasised.

COPF Chairperson Harsha de Silva likened the example of unsustainable capital injections to the period immediately after the end of the war; which had seen unprecedented levels of growth in Sri Lankan history, yet was followed by a period of below average growth.

“What happened after the war, the construction boom for 2-3 years during Mr Rajapaksa’s time, growth went up to 9%. But by 2013, it fell to 3.5%.”