were implemented by the Central Bank,  Fiscal policy in 2016 has been directed towards strengthening the fiscal consolidation process. Reflecting the positive impact of the strenuous efforts of the government, fiscal performance has indicated an improvement during 2016. Government revenue has continued its increasing trend while  in line with international standards and best practices, to strengthen the regulatory and supervisory framework pertaining to licensed banks. Key banking sector indicators remained at healthy levels, while the nonbank sector performed despite stringent fiscal and macroprudential measures. maintaining expenditure at the desired  Meanwhile, the national payment  level. The government is certain that the  systems of the country operated  announced budget deficit of 5.4 per cent  smoothly without any major disruption  of GDP will be achieved in 2016, and it  while facilitating the growing and  will be reduced further to 4.6 per cent in  changing payment needs of the financial  2017.  sector with improved efficiency and safety. Central Bank of Sri Lanka – ROAD MAP 2017  10  3. Monetary Policy Strategy and Policies for 2017 and Beyond A coherent and clear macroeconomic  macroeconomic policy framework in  framework, is important to achieve our  the country, built upon three key areas. objectives. The government is in the process of  Among the key elements of the overall  taking decisive measures to address the  macroeconomic framework, price  long felt deficiencies in its budgetary  stability is an important pillar.

HOW MIGHT CLIMATE RISKS AFFECT INVESTOR PORTFOLIOS? Perhaps the most challenging, pervasive, and enduring of all the risks that the global economy is confronting is climate change. Climate change poses two key risks to investors’ portfolios: First, physical risks arise from the impact of climate hazards on a company’s operations, supply chains and consumer markets. Companies can mitigate this by putting in place adaptation measures through de-risking, re-shoring, and diversification. Second, transition risks arise from the impact of higher carbon prices, stricter environmental standards, shifts in consumer preferences, and advances in lowemissions technologies. This will require transforming carbon-intensive business activities and processes — before regulation bites, competitiveness suffers, and assets become stranded. Assessing portfolio companies’ vulnerabilities to climate change is becoming an integral part of business planning and shareholder engagement. Climate change is already happening. It is no longer a question of ‘whether it will happen’ but ‘how much’ and ‘how fast’. The trajectory of both physical and transition risks is highly uncertain. Global carbon emissions have not peaked. At the same time, commitments towards achieving netzero have never been stronger, foreshadowing stronger policy actions and growing clean energy investments. It is within this wide spectrum of possible outcomes that investors will need to make portfolio allocation decisions. INVESTMENT PIVOTS FOR PORTFOLIO RESILIENCE  Against the backdrop of these four short-term to long-term uncertainties, the overall investment environment has deteriorated. Return prospects are lower, and risks are higher.