FINANCIAL CHRONICLE – Sri Lanka needs to sustain its fiscal consolidation efforts and strengthen external sector buffers to safeguard macrofinancial stability, the Central Bank said in a statement.
Sri Lanka’s economic recovery has been disrupted by the ongoing Middle East crisis followed by Cyclone Ditwah-hit disaster in the last quarter of 2025.
The Central Bank said the country’s private sector credit has expanded with the government’s fiscal consolidation having given more space. “Despite the decline, government-related exposure remains sizeable,” the Central Bank said in a statement after releasing the details on Sri Lanka’s financial sector performance in 2025.
It said domestic macro financial conditions strengthened further in the year, supporting continued credit expansion, although external vulnerabilities remained a concern.
“However, the credit-to-GDP gap widened further into the positive territory of the credit cycle, underscoring the importance of maintaining vigilance over the potential build-up of systemic risk within the financial sector.”
It said global uncertainties, including geopolitical conflict in the Middle East, volatility in commodity prices, and adverse weather conditions, could pose downside risks to the financial sector’s credit quality.
“Against this backdrop, sustained fiscal consolidation and the strengthening of external sector buffers will remain essential to safeguarding macrofinancial stability.
The credit growth accelerated with total credit extended by banks and Finance Companies (FCs) rising by end-2025.
The financial sector’s exposure shifted further toward the private sector, driven by strong private sector credit growth, while exposure to the public sector contracted reflecting ongoing fiscal consolidation, it said. (Colombo/March 17/2026)
