The Central Bank of Sri Lanka (CBSL) has raised concerns over the deteriorating economic outlook, warning that inflation is set to rise in the coming months due to both domestic and global factors. A significant contributing factor to this economic strain is the mass exodus of skilled workers and professionals seeking employment abroad, which is leading to a productivity decline across key industries.
In its first Monetary Policy Report for 2025, the CBSL highlights the severe impact of labor shortages on businesses and national economic growth. The migration of skilled workers has created gaps in essential industries, particularly in manufacturing, food processing, power generation, and construction, all of which are integral to the country’s economic stability. The report warns that unless measures are taken to retain skilled professionals, Sri Lanka’s long-term economic growth and productivity will continue to decline.
Another pressing concern outlined in the report is Sri Lanka’s external sector performance, which the CBSL says is vulnerable to global uncertainties. Political changes in the United States are cited as a major risk factor, with potential shifts in US trade policies, capital flows, and investment strategies having significant ripple effects on Sri Lanka’s economy. If the US tightens its monetary policies or changes its stance on global trade agreements, it could impact international markets, affecting Sri Lanka’s exports, foreign direct investment, and exchange rate stability.
Furthermore, the CBSL forecasts an increase in inflation over the next three months and beyond, attributing this rise to several key economic drivers. These include higher government spending, rising public sector wages, the depreciation of the Sri Lankan rupee due to the easing of import restrictions on private vehicles, increasing global commodity prices, and heightened consumer demand during upcoming festive seasons. The report underscores that without effective monetary policies, these inflationary pressures could weaken consumer purchasing power and slow down economic recovery.
The CBSL urges policymakers to adopt proactive measures to mitigate inflation risks and stabilize the economy. This includes ensuring better workforce retention strategies, strengthening monetary policies to control inflation, and preparing for potential disruptions in international trade and financial markets. If not addressed, the ongoing economic challenges could further strain Sri Lanka’s fragile economic recovery, impacting growth, investment, and overall financial stability.
