This will support more informed and risk-aware decision-making at the top, while strengthening the risk mitigation culture, enhancing internal governance, optimising risk management cost, and promoting efficient use of resources, while building confidence of stakeholders and the community at large. As the key elements, new Risk Governance and Risk Management Structures, along the “Three Lines of Defense” model, are expected to be established, putting in place an overall Risk Management Policy Statement for the whole of the Central Bank. Priority will be attached to developing risk registers in line with internationally accepted standards and an incident reporting mechanism together with related IT infrastructure developments. Implementation of this throughout the Central Bank would help in inculcating a risk and compliance culture in the Bank. Further, a compliance framework will be developed in line with established global benchmarks, which will be implemented with a compliance tracking system of rating. 25  4. Policies to Strengthen the Broader Economy What we have deliberated thus far were the future plans and policies associated with the core functions of the Central Bank. In addition to these functions, we are also engaged in several other activities, which we refer to as ancillary functions and the agency functions carried out on behalf of the government. Currency Management As you are aware, the Central Bank has always taken measures to ensure the availability of currency for use by the general public and in 2017, we continued to do the same, while making all efforts to improve currency operations and processes.

It is noteworthy that there has been a build-up of non-debt creating international reserves during 2017, with minimal impact on the exchange rate. Going forward, foreign exchange intervention policies will be adopted, which are consistent with a flexible exchange rate regime and supportive of improving foreign exchange market functionality. Maintaining a competitive exchange rate will be an important objective of the Central Bank. In line with this policy, we will continue to focus more on non-debt creating financial flows in building up reserves. Ongoing policy reforms of the government focus on boosting exports as well as attracting FDI. This gives greater salience to our agenda of maintaining flexibility in the exchange rate to boost competitiveness. The Board of Investment (BOI) has estimated FDI to have reached US dollars 1.5 billion in 2017, which will be a key milestone and could possibly be a turning point in FDI inflows. The commencement of the Hambantota Industrial Zone and the continuation of the Colombo Port City project are expected to bring significant FDI flows from 2018 onwards. Annual FDI flows of US dollars 2-3 billion are expected in the coming years. In addition to boosting growth and employment, it will also enhance external sector resilience by generating non-debt creating inflows and boosting exports. The Central Bank will continue to manage reserves in line with a model based Strategic Asset Allocation framework (SAA), to ensure foreign exchange reserves are managed with the objective of ensuring an adequate level of liquidity and a reasonable return in comparison to benchmarks.