Sri Lanka Warned of Narrowing Policy Space Amid Global Shocks 📈

• Macroeconomic Status: While indicators have stabilized, experts warn that the "absence of crisis is not proof of strength." The economy remains highly vulnerable to tightening global financial conditions and geopolitical fragmentation. • Fiscal Shift: A significant improvement in fiscal management was noted, with the Government moving from a heavy reliance on State bank overdrafts to maintaining a surplus position as deposits within the banking system. • Poverty & Development: The Centre for Poverty Analysis (CEPA) reports that the 2022 crisis and subsequent shocks have effectively moved Sri Lanka "25 years back" in terms of poverty and development gains. Current national poverty data is noted as outdated, predating both the pandemic and the 2022 collapse. • Regulatory Action: The Central Bank of Sri Lanka (CBSL) is expanding market conduct supervision to target "unacceptable practices" in lending and deposit-taking. The focus is shifting toward financial literacy and inclusive finance to build household resilience. • Risk Factors: The Asian Development Bank (ADB) highlighted risks from the Middle East conflict and previous shocks (Tsunami, COVID-19, Cyclone Ditwah). Future growth must rely on structural reforms rather than short-term stimulus, which experts say the global environment is no longer "forgiving" enough to absorb. • Sector Focus: Emphasis is placed on strengthening social protection systems and digital integration to protect vulnerable groups from future external pressures.