Despite these challenges, 2017 was a year when we made significant progress on many fronts through several policy measures taken by the Central Bank in coordination with the government. In response to these measures, macroeconomic stability is being restored and our economy is trending in the right direction. The Central Bank has implemented several proactive policy measures during 2017 in order to achieve the core objectives of maintaining economic and price stability and financial system stability. Three frameworks have been put in place to improve the country’s overall macroeconomic conditions. Attention is also being paid to institutionalising them. The Central Bank is working towards implementing a Flexible Inflation Targeting (FIT) framework by 2020 to conduct monetary policy in a proactive and forward-looking manner. It has also adopted a more flexible exchange rate policy that promotes export competitiveness. The government is also committed to a revenue based fiscal consolidation programme, which intends to bring down budget deficits and debt levels progressively. If we get fiscal policy and monetary policy right, then the pressure on the exchange rate would reduce. Let me discuss these frameworks in a detailed manner. On the monetary policy framework, the Central Bank’s move towards introducing a FIT regime aims to maintain a low inflation environment on a sustained basis. The FIT framework is a data-driven, forward-looking and proactive monetary policy regime built upon three main pillars: strong fiscal policy support, effective monetary policy conduct, and strong central bank mandate and credibility.

Provisions of the new Act are being implemented through the newly established Department of Foreign Exchange in the Central Bank focusing on reducing restrictions, excluding ambiguities, simplifying processes and enhancing efficiency associated with foreign exchange transactions while striving for clarity and convenience. A significant amount of work needs to be done to improve Sri Lanka’s global ranking in the implementation of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulations. The Financial Intelligence Unit of the Central Bank is taking several measures to address this with the assistance of key government Ministries and Departments as well as stakeholders such as Licensed Banks, Licensed Finance Companies, Regulators, Stock Brokers and Insurance Companies, and continued to enter into new MOUs with other country FIUs. The Central Bank has already initiated several measures to enhance the economic stability of the country and it will continue with this endeavor in the future as well. Given improved economic fundamentals and stability, it is expected that the government will implement the  6  necessary policy reforms to uplift the economy from the prevailing low growth trajectory to reach its potential level. The government’s Vision 2025 unveils the future policy direction of the country. The Vision envisages transforming Sri Lanka into a hub of the Indian Ocean, with a knowledge-based, highly competitive, social-market economy. Accordingly, considering the limited scope of the domestic market, sustained future economic growth would have to be generated from external demand.