Sri Lanka must build foreign reserves during stable periods, says Central Bank Governor

Sri Lanka must build its foreign reserve buffers during favourable periods to prepare for future economic shocks and growing geopolitical uncertainty, Central Bank Governor Dr. Nandalal Weerasinghe has warned.

Speaking at the inaugural Reserve Management Conference 2026 in Colombo, Dr. Weerasinghe stressed that the nation's 2022 economic crisis demonstrated the severe consequences of critically low external buffers, which restricted imports, strained debt servicing, intensified exchange-rate pressures, and eroded economic confidence.

While macroeconomic stabilisation and structural reforms have strengthened Sri Lanka's external sector since 2022, the Governor cautioned that reserve accumulation is not a linear process and can be rapidly undone by external shocks.

He warned against excessive market intervention, monetary expansion, or heavy foreign borrowing to accumulate reserves, advocating instead for a sustainable economy that naturally generates and retains foreign currency.

He also highlighted geopolitical risks, particularly global oil price spikes and potential disruptions to tourism, remittances, and other inflows for energy-importing economies.

On global reserve trends, Dr. Weerasinghe noted that while central banks are examining concentration risks, the US dollar remains dominant due to market depth, emphasizing that liquidity must take precedence over diversification.

He added that while artificial intelligence can enhance forecasting and market monitoring, human judgement and responsibility must remain central to reserve management. Concluding his address, Dr. Weerasinghe affirmed that there are no shortcuts to sustainable reserve building, which relies strictly on sound macroeconomic fundamentals, policy credibility, and institutional discipline.