Moreover, a new Direction on Outsourcing of Business Operations was introduced to standardise outsourcing arrangements. A Direction was issued to regularise the valuation procedure of the LFCs and SLCs regarding immovable properties. In the interest of depositors and stability of the system, several resolution actions were taken in relation to distressed companies during 2018, including cancellation of some licences and introducing regulations on winding up LFCs. Going forward, the sector needs to cope with enhancement of the minimum capital requirement and higher loan loss provisioning with the introduction of Sri Lanka Financial Reporting Standards 9. Further, the change in the regulatory posture of the Central Bank will result in early interventions against noncompliant, distressed and high risk LFCs. This will include regulatory actions, such as the restriction of business through deposit and lending caps as well as suspension and cancellation of licences. Further, guidelines are expected to be issued applicable for financial reporting of LFCs and SLCs. We will also consider issuing directions on the ownership limits. Also, capital levels of the sector are expected to be strengthened as a result of enhanced capital requirements. The LFCs and SLCs, which are unable to comply, will be encouraged to consolidate on a voluntary basis. Non27  compliance will result in restrictions on deposit and business expansion and, where necessary, winding up of businesses. Therefore, it will be necessary for LFCs to give priority to capital augmentation plans in the near future. There will be no regulatory forbearance in this respect.

Most importantly, we initiated actions to develop a National Financial Inclusion Strategy (NFIS) for Sri Lanka with the aim of promoting a more effective and efficient process to improve financial inclusion across the country. In this regard, the Central Bank signed a Cooperation Agreement with the IFC in January 2018. As a part of the NFIS, an island-wide survey was conducted to understand the overview and landscape of the current level of financial inclusion and financial literacy across the country. NFIS is expected to be launched by Mid-2019 to bring in financially excluded segments to the formal financial sector thereby promoting inclusive and balanced economic growth, while encouraging MSMEs in Agriculture, Industry and Services sectors by ensuring access to affordable financial services for production oriented economic activities. 40  5. Concluding Remarks Ladies and Gentlemen, We have come to the conclusion of my speech. At the outset, I mentioned that our country faced several difficulties during 2018 which threatened macroeconomic stability. However, in retrospect, I can record that the Central Bank and the government decisively intervened and implemented several policy measures to mitigate the impact of such challenges and uncertainties. It is evident that these measures have helped us to withstand certain shocks that we faced and to ensure broader stability of the economy in spite of some sectoral imbalances. Nevertheless, we do acknowledge that several challenges and threats still prevail and there is a plethora of impending risks that may exert further pressures on overall macroeconomic and financial system stability.