Thursday May 14, 2026
Thursday May 14, 2026
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| CBSL Deputy Governor Dr. Chandranath Amarasekara – Pic by Sameera Wijesinghe |
Amid rising inflation, recent tax policy changes to widen the net and increase rates, and the electricity tariff hike this week, Central Bank of Sri Lanka (CBSL) Deputy Governor Dr. Chandranath Amarasekara has warned against reversing Sri Lanka’s post-crisis fiscal and pricing reforms.
He argued that politically driven subsidies and delayed adjustments would recreate the macroeconomic imbalances that led to the 2022 economic collapse.
Delivering the keynote address at a public lecture organised by the Gamani Corea Foundation and the Sri Lanka Economic Association on ‘Sri Lanka’s Current Macroeconomic Policy Directions in the Context of Global Volatility,’ Dr. Amarasekara repeatedly urged policymakers and the public to consider the “counterfactual” of what could have happened had stabilisation measures not been implemented.
The remarks came against the backdrop of renewed global energy market volatility linked to the Middle East conflict, as Sri Lanka continues implementing tax and utility pricing reforms under its International Monetary Fund (IMF)-supported program.
Dr. Amarasekara said the country’s inflation surge to 70% in September 2022 could have evolved into a prolonged hyperinflationary spiral had authorities failed to restore monetary and fiscal stability.
“In September 2022, inflation reached 70%. The impact of that shock is still reflected in the price structure of the economy. The increase in the cost of living during 2022 and 2023 was severe. What is often overlooked today is that prices have since stabilised,” he said.
“If inflation had not been brought under control, Sri Lanka could have faced the experience of countries where inflation accelerated further and remained elevated for years,” Dr. Amarasekara added, referring to historical episodes of hyperinflation in economies such as Venezuela and Zimbabwe.
He noted that while many countries which crossed 50% inflation struggled for years to restore price stability, Sri Lanka managed to reduce inflation to single digits within 10 months of its peak.
The Deputy Governor also argued that preventing a systemic banking crisis during the economic collapse was one of the country’s most significant but underappreciated achievements.
“In many countries that experienced crises of this magnitude, the outcome was not only inflation but also banking sector collapse. Sri Lanka avoided that outcome at all costs, and that enabled a faster recovery,” he said. “If there had been a banking crisis, not only the real value of savings, but even nominal savings could have been wiped out. Recovery under those conditions would have been far more difficult.”
Dr. Amarasekara strongly defended reforms implemented under the IMF program, arguing that many of the measures criticised politically were structural reforms Sri Lanka had postponed for decades.
“When you examine the reforms agreed under the IMF program, these are fundamentally reforms the country needed in any case,” he said.
Among the reforms he highlighted were formula-based fuel pricing, cost-reflective electricity tariffs, welfare targeting, the new Central Bank Act, anti-corruption legislation, banking sector reforms, the Public Financial Management Act, and the Public Debt Management Act.
Dr. Amarasekara argued that Sri Lanka’s eventual adjustment became significantly more painful because successive governments delayed tariff revisions, maintained artificially low taxes, and financed widening fiscal deficits through debt accumulation.
“Petroleum prices, electricity prices, and utility pricing in general cannot be determined on political considerations alone. They have to reflect actual costs,” he said.
Dr. Amarasekara said rebuilding fiscal and financial buffers remained critical given Sri Lanka’s exposure to external shocks, particularly as a heavily import-dependent economy vulnerable to swings in global energy prices and capital flows.
“We cannot artificially keep revenue low, run large fiscal deficits, and postpone adjustments indefinitely. We experienced the consequences of that approach during the build-up to the crisis,” he said.
He noted that maintaining adequate fiscal space and financial sector resilience were essential to withstand future external disruptions, including commodity price shocks and geopolitical instability.
Dr. Amarasekara devoted significant attention to defending formula-based energy pricing, arguing that years of politically controlled electricity and fuel prices had created unsustainable fiscal burdens and mounting losses at State-Owned Business Enterprises.
“Electricity tariffs were not revised between 2014 and 2022 despite movements in global energy prices. The consequence of that policy was either direct subsidy costs to the Government or accumulated losses within State-owned enterprises. That was not sustainable,” he said.
He stressed that Sri Lanka’s heavy dependence on imported energy made cost-reflective pricing unavoidable over the medium term.
“In many countries, petroleum prices adjust frequently in line with market conditions. In Sri Lanka, however, there has long been an expectation that prices should remain fixed regardless of global developments. That is not economically rational,” Dr. Amarasekara said.
Warning against broad-based subsidies amid rising global oil prices and geopolitical tensions, Dr. Amarasekara said attempts to artificially suppress prices today would only shift the burden into the future through inflation, debt accumulation, or future tax increases, while weakening the country’s ability to maintain economic buffers.
“If any government chooses to subsidise electricity, fuel, or any other major utility without the fiscal space to do so, the cost does not disappear. It simply has to be paid later, in another form,” he said.
He added that subsidies, where necessary, should be narrowly targeted towards vulnerable groups rather than applied broadly across the economy.
Dr. Amarasekara also defended ongoing tax reforms, arguing that Sri Lanka’s historically low revenue collection had become fundamentally incompatible with fiscal and debt sustainability.
“We have lived beyond our means for decades,” he said, noting that Sri Lanka’s revenue-to-GDP ratio had fallen to around 8.5% during the 2020-2022 period, placing the country among the weakest revenue collectors globally.
