New Banking Act in the offing along with a Monetary Law Act

A new Banking Act and a new Monetary Law Act, which govern the activities of the Central Bank, are currently under works.
The act could be passed into law by next year as part of the commitments under the economic stabilisation package agreed with the International Monetary Fund (IMF), the Central Bank officials said.   

Responding to a question on the progress made on the two pieces of legislation, Central Bank Deputy Governor Yvette Fernando told the media last week that the New Banking Act is almost in its final stages and would likely be sent to the Cabinet and Parliament by next year.   “On the Banking Act, we have almost done a new act. 

However, we have to do a bit more consultations there because we want to expand on the resolution area, so that is happening now,” she said without providing many specifics on what could entail in a new act.   “Most probably during the course of next year, we are expecting to finalise it by sending it to the Cabinet and thereafter Parliament for their approval,” Fernando added.  Currently, Sri Lanka’s banking sector is regulated under Banking Act No. 30 of 1988 and its subsequent amendments.  

Meanwhile, Sri Lanka is also drafting a new Monetary Law Act to replace the current Monetary Law Act No. 58 of 1949, with its subsequent amendments to provide more independence to central banking under the IMF-backed reforms into the monetary authority.  

An earlier draft of a new Monetary Law Act was never passed into law, as the economic policy changed after the new government that came into power with the presidential elections held in November 2019 and abandoned the programme.  The draft was either developed or was in the process of developing prior to 2020 when the country was under its 16th IMF programme.   There are widespread calls to end the fiscal dominance of the monetary policy, which has undermined effective and independent monetary policymaking, which according to certain economists caused repeated balance of payment (BoP) crises, rapid inflation and thereby keeping people poorer.   Sri Lanka is currently facing its worst BoP crisis, with nearly 70 percent inflation plunging scores of people into poverty, partly caused by unrestrained monetary financing of large budget deficits of the government. Loss of key foreign inflows, persistent global inflation and commodities shortages caused by the pandemic and other geopolitical crises also contributed largely to the current predicament that the Sri Lankan economy facing.