14 August, 2022


Dollar/Rupee Conundrum & The Need For A Balanced Economic Policy 

By Laksiri Fernando –

Dr. Laksiri Fernando

During the last nine months of the present year (January-September 2018), the rupee depreciation had been nearly 10%, and that is what has prompted the government and the Central Bank to take some measures (at the last moment). The situation has also sparked a heated debate on the pros and cons of liberalization and government’s economic policies. To underscore the gravity of the situation, the rupee depreciation during the same period last year did not exceed 5%.   

The value of the rupee, which amounts to the exchange rate, not only affects the country’s or the people’s economic conditions, but also the economic and business confidence. A country’s currency, in this case the rupee, is also the pride of the people. It’s fall may be an insignificant event to some economic theorists, but not to the people. There can be panicky conditions, if the situation is not ameliorated properly, with immediate measures as well as long term wise policies.

Rupee Change to Dollar since Independence (1948)


Appreciation of the Dollar  

The rupee has been depreciating throughout years since independence and it was perhaps unavoidable to an extent given Sri Lanka’s weaker or vulnerable position compared to other countries and currencies, particularly of the West and now countries like India and China. At independence in 1948, a dollar could be bought at Rs. 3.32 and it was relatively stable for 30 years. Now it is around Rs. 170 and still depreciating. The general trend however has been a reflection of Sri Lanka’s low pace of development due to both unavoidable conditions (civil war, intermittent natural disasters, intense international competition etc.) and avoidable factors (excessive political expenditure, corruption, mismanagement, low enterprising culture etc.). 

The central question therefore is whether Sri Lanka ever had a proper economic policy/plans (except ‘chinthana’ and visions) to develop the country including to manage the rupee or the external sector of the economy, preferably on a bipartisan basis as much as possible. Conflictual policies on ‘liberalization and protectionism’ between different governments have rendered more harm than good.  

Primarily as a result of the US President’s protectionist policies, the dollar value has been appreciating against, for example the gold prize, during the last 1-1/2 years. This was almost 12%. However, this has reversed slightly since April (‘Gold climb higher as US dollar eases,’ CNBC, 5 September) and the new trends are yet to be seen. 

Internal Reasons? 

As the rupee’s sharp down turn has come exactly after this ease period (April-September), it is questionable whether the reasons are solely external. On 9 April, the dollar was Rs. 154.95, but on 4 October it rose to 170.06. As we are in largely a liberalized ‘free market,’ speculation must have played a role. It was reported that the export earners were holding their dollars without releasing them during this period given the downturn, although exact figures are not available. This has rendered the rupee to slide further during the last six months.      

Another factor has been the capital outflows from the bond market, treasury bills and other financial markets. During this year there had been nearly $ 1 billion outflows, with very little new inflows. No measures were taken to boost the investor confidence. The outflow has been a pressure on the reserves and the rupee. The reason could not only be the low economic growth, hence low confidence in the economy, but also the political instability. 

Although the Indian rupee has faced a similar depreciation, the repercussions could be less, given the country’s strong economy with a growth rate around 7 percent and political stability. The growth rate in Sri Lanka in 2017 was all time low at 3.1%. It was 4.5% in 2016. Although the government predicted 5% growth for this year, the IMF or other agencies have not been that optimistic, predicting below 4 percent, probably settling to around 3.5. 

Trade Deficit 

The most pertinent to the rupee depreciation has been the country’s deteriorating trade deficit, without proactive action on the part of the government. If we get a comparative picture for the six months of 2018 with that of 2017, based on the available Central Bank data, the following is the picture. 

Trade Deficit (US $ m)

Jan-June 2017 Jan-June 2018 Change %
Exports 5,398 5,732 6.2
Imports  10,149 11,441 12.7
Trade Deficit  -4,751 -5,709 20.2

It is very clear that although the exports increased by 6.2% during this two years, the import bill increased two times of that value or by 12.7%. In actual terms, there was a trade deficit of $ 4.7 billion in 2017 and billion 5.7 this year during the first six months. It is true that the worker’s remittances and earnings from tourism could cover a major part of the deficit, however a more balance external trade policy could have saved those incomes for better development purposes. 

It should be noted that it was the workers, working abroad, who gave Sri Lanka around $ 7 to 8 billion every year to combat the increasing import bills including super luxury cars, duty free for certain sections.        

Removal of Para Tariffs ?

There is no question that Sri Lanka’s tariffs are high compared to similar countries (Singapore, Malaysia, Thailand etc.), particularly in the case of imports. Still the average rate is around 22%. This is quite low compared to what the US has imposed on other countries recently. There are certain imported investment items even with 0% tariffs and the highest for luxury items does not exceed 37%. As we all know, super luxury cars were even given completely duty free to certain categories of people, as if the government policy is to promote other-countries’ exports to Sri Lanka.   

It is true that para-tariffs in the form of PAL (Ports and Airports Development Levy), CESS, VAT and NBT (Nation Building Tax) are cumbersome and complicates and discourages trade and those should have been simplified and regularized. However, the import taxes are necessary for a country like Sri Lanka to protect the local industries and agriculture while promoting exports. Leading up to the last budget, the government had started a process of removing and exempting these para-tariffs and it is still not clear how far these ‘liberalization’ has caused the present rupee’s predicament, in addition to the appreciation of the US dollar. 

Ironically, in quite a panicky reaction on the part of the Ministry of Finance, during August and September, there have been nearly 20 notifications issued to the customs and others, regarding the re-imposition of some of these para-tariffs again, including for sanitary pads and tampons. It is not clear where the government’s economic and trade policies are heading today. 

Disregard for Local Business Opinion 

There have been several business leaders expressing their views against the government’s unmanaged and unmitigated liberalization policies, right or wrong. However, those should have been listened into and at least a dialogue should have been initiated. When the Managing Director of the DSI Group, Kulatunga Rajapaksa, was expressing concerns about the removal of para-tariffs for over 250 items (Sunday Observer, 10 December 2017) he was not only talking about the footwear industry, but also others. He asked why tariffs are removed for ‘salt, yoghurt and butter’ for example. 

He also questioned the rationale of granting approval for an Indian company (VKS) to produce footwear in Sri Lanka by importing all raw material while jeopardising the local small and medium scale enterprises that employees over 300,000 people. The FDI expected is only $ 250,000 in his argument. Now we have a rail investor from Germany asking duty free helicopters, ships, luxury vehicles, subsidized electricity and 4,000 acres of land for a mere 488 euro investment! (economynext, 6 October). 

Similar views were expressed by Planter’s Association Chairman, Sunil Poholiyadde, and many others. It may be possible that some local industrialists and planters are asking too much protection not suitable for competitive market conditions. The local natural rubber producers are obviously catering to low value-added local industries and for natural rubber exports, while the high value added industries in the BOI sector are importing natural rubber ($ 288 million) from other countries. 

From purely a theoretical point of view one can argue that it is the way the markets operate. However, here we are talking about human beings and their livelihoods, and therefore there should be a possibility of bridging the mismatch between natural rubber production in the country and the emerging value-added rubber product industries for exports. 

This is why we have democracy and elected governments and responsible state officials with necessary research baking. There is no much point in exporting natural rubber overseas. While the already formulated ‘Sri Lanka Rubber Industry Master Plan (2017-2026)’ should be acclaimed, the bridging the above gap should take a major policy priority. This is only an example. 


Obviously, there are other factors that have affected the rupee depreciation. Increasing budget deficits, primarily because of high defence and political expenditure, and associated foreign borrowings, in addition to meeting the trade deficits, have triggered and aggravated the situation. All have not been discussed here. While the foreign borrowings remained at a high level by 2015, since then over $ 20 billion have been borrowed to pay interests, pay back debt and offset foreign exchange deficits. That is why and how around $ 9 billion reserves are kept. 

Therefore, the Central Bank (or the government) is in a dilemma whether to release the reserves to save the rupee, or keep primarily aloof, allowing the rupee to fall further hoping it might naturally promote exports and discourage imports. The fiscal (tax) measures so far taken by the Ministry of Finance are only minimal. There is this liberal economic theory that a more ‘natural price’ for the rupee (meaning much more devalued rupee) is the best for free trade. These theorists too much believe in the nature of markets, while markets are manipulated by ‘others’ for different purposes and interests. This is in a context where the IMF has warned that the world must be at the brink of another financial meltdown or even a great economic depression. 

Sri Lanka would be lucky if it can escape the NOMURA warning that the country is not only in a critical situation, like South Africa, Argentina, Pakistan, Egypt etc., but at a stage where a ‘crisis could erupt at any time.’ This can be an exaggeration, but what the situation highlights is the lack of responsible handling of the country’s economy with a balanced economic policy.  

While it is true that Sri Lanka should promote exports to the maximum and open up as much as possible, that should not be done at the expense of local industries and agriculture; and the people and their livelihood, to suit a theory or satisfy certain sections of the international community. Sri Lanka is not a robot-land suddenly converted into a mere component in the global supply chain, but an ancient country with nearly 22 million people, with traditions, lifestyles and livelihood patterns.



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Latest comments

  • 3

    Thanks Dr. Laksiri:
    Trump is doing what he accuses China of – currency manipulation to benefit America and global 1 percent. Trump is crashing small economies with a combination of Sanctions and trade wars and then US and its Asian buddy Japanese companies will buy strategic assets like land cheap in countries like Lanka. Out of box solutions are needed in this context.
    aside from Debt Cancellation which is certainly needed, there are many other policy measures to stop crash of Lankan rupee.
    First and foremost, Sri Lanka urgently needs an independent foreign, trade and economic policy and should not be following Trump’s sanctions against Iran.

    1. EU has decided to ignore US sanctions and continue to trade with Iran. So too, it is in the best interests of Lanka to continue oil imports and tea exports to Iran. Oil prices going up due to Trump’s sanctions against Iran is one of the big reasons that rupee crashed since Oil is the single biggest item in Lanka’s import bill. Iran is arguably Lanka’s most important trade partner because it sells cheap oil and buys Lankan tea.
    2. Sri Lanka must reduce by half its massive defense budget and cut govt. spending to reduce spending and the debt trap. Trump is militarizing Sri Lanka and Indian ocean with Fake security threats and fake news in his Cold War with China. Defense spending in Lanka as in US which is the biggest budget expense. Lanka again must and say NO TO TRUMP and his strategy of militarizing Indian Ocean. Disaster preparedness is a huge scam these days!
    3. Sri Lanka needs to go for Yuan and Renminibi bonds and reduced its dependence on US Dollar What is needed is a political economic analysis and a foreign policy reorientation to get out of the IMF-WB Debt trap and “Bail Out Business” (that Greece, Argentina and Haiti suffered), and where Lanka is headed .

    • 1

      Renminibi Bonds are a must for Lanka now.

      Japan;s Nomura ratings which bought up the crashed Lehman Brothers after 2008 financial crash, is a Fake financial news and dodgy analysis provider for Washington in Asia.
      It was in fact this Nomura rating agency that deliberately triggered the run on South Asian currencies before Trump sent his investment team to get good bargains in South Asia with the strong dollar. Thus, On Oct 05, 2018 Executive Vice President of the Overseas Private Investment Corporation (OPIC) David Bohigian and other U.S. government officials visited Sri Lanka The trip promoted U.S. investment in the region and strengthened cooperation with regional allies to drive economic growth and stability, the U.S. Embassy in Colombo said.

      It is part of Washington’s USD manipulation to get good deals to put America first in Asia, especially where ever China is digging in.

      Various Japanse news agencies like Nikkei have been also spinning fake news, claiming that China is cause of Lanka’s debt trap, when in fact it is Japan’s ADB, and Washington’s World Bank that hold the biggest shares of Lanka’s debt.
      Hence it is these fake development Banks and IMF that should cancel Lanka’s debt rather than force it into the IMF’s |bailout business.” with their Economic Hit men who have ruined so many other countries.

      • 0

        Yes, Washington is rent seeking by manipulating the dollar and economic environment, particularly focused on Indian Ocean rim and in South Asia region (Indo-Pacific), and focusing on acquiring strategic lands and transport infrastructure cheap in Indian Ocean region countries, which is the most important growth region in the world, also to fight its Cold War against China rising.
        Sri Lanka should go for yuan bonds and start using crypto currencies and dump the dollar.
        The weeks before OPIC was in Colombo,US govts. Millennium Challenge Corp. (MCC) also was in town to get 4000 acres of prime Strategic Lands in Muthurajawella, Horana, Matara etc to set up a dubious high speed rail project plant, university etc.
        Hence, Mangla Yapa their economic Hit man at the failed Agency for Development is now moving to BOI to facilitate this asset stripping of prime lands by fake investors (recall the Horana tire factory) through the Single Window Approval Investment Committee (SWIAC) at BOI
        In his book “Monsoon”, Robert Kaplan, US foreign policy guru has laid out the importance of the Indian Ocean for global economy and security in the entire world in the 21st century and beyond. This is why US has recently invented an Indo-Pacific region and is sticking its dirty fingers into Indian Ocean region and promoting market fundamentalism with IMF, crashing the rupee and asset stripping Lanka now.

  • 1

    The country is now reaping the full harvest of what the UNP regime sowed in 1978 in the name of the ‘open economic policy’.
    What is there to balance in an economy relying on export of labour while industry except than in the FTZs has declined?
    What is needed is to rethink the economy.

    • 3


      Let us go back to Katta Hakkuru days.
      Deny ordinary people access to technology, raw materials, daily long queues to buy bread, sugar, …………. stagflation, shortage for food and essentials, black market, travel ban because of shortage of foreign exchange, exit visas, ……………………. license raj, ………………… beginning of institutionalised corruption and culture of impunity for large scale massacre, ……………. shrinking economy unable to sustain large workforce, ….

      Are you insane?

  • 0

    I think you have said everything. Yet understand who the economic experts are and from whom they take expert advice. Politicians are the bosses. They appoint their friends. Just think how do PMs and miisters resign in where you are naturalized. They have some honourability even they made mistakes. Sri lankan politicians are not honourable GENTLEMAN even though they show it. See Sri lankan airlines, even after two govts, still it is worth only to appoint a commission and to make an election issue. What happened to proven case of Bond Scam. Railway is over politicized. Even there political authorities inside the institution. They are giving it to a private company woth lot of concessions. Why is it money losing business that has to be grown up. Get the Insurance Corporation. They have products to sell because they know that those are very profitable. They sold it and now private businesses and european companies are making money just giving insurence to the farmers, school children, politicians, health insurence. Yesgerday, there was news which said Ajith dias the Airline cafetaria owner had given contracts worth upt o 55 million when his capacity was rs 15t million. Mahinda Rajapakse went to elelections two years ahead the time because economy was crashing. Ranil do not know what to do. He knew that economy would be crashing. Instead he prepared a economic vision for 2025 which means even the next govt can not turn around this slide down. It is public knowledge in the web, every time when govts knew their currency is being devalued they stopped imports and increased exports. THESE IDIOTS CAN NOT UNDERSTAND WHY EVEN THE MOST TRADE SUPPORTIVE GOVT IN THE WORLD usa IS GOING TOWARDS PROTECTIONISM. SO, IN THE NEXT ELELCTION WE VOTE TO SOME OF THOSE IDIOTS WHO ARE ALSO RIGGING AND RIPPING THE TAX paydr saying we do not steal and we get what ever they gove us.

  • 0

    Even where I am living, a Developed country, the private sector do not alwys go to the newst machinery. I heard Paranthan, KAnkesan etc are not reiviing because one idiot advised saying those are old machinery. Only problem is hiring MPs’ unskilled workers and Miister appointed management. One draw back is the yahapalana, or Sabhaga or govts made up with diffrent alliences. Thye should provide concessions to three wheeler parties as they promised. Why Sri lanka is not developing exports, manufacturing based on available resources. instead they try to lease Sri lanka to various companies. See that 99 tansk in Trinco. US tried to buy via Sweden and Singaproe that did not happen (very old story). Now saying INdia do not like, they do not develop it. Instead try to lease it to India. Why IDIOTS ARE RUNNING THE COUNTRY AND STUPID VOTERS ARE VOTING THEM. why there no new alience is coming to the elections. I am not talking JACKAL opposition like the same group OF CROOKS REGISTERING A NEW PARTY AND CRYING OUT LOUD FOR THE SAME OLD STUFF. JUST CHECK WHAT THEY ARE TALKING FOR THE LAST FOUR YEARS.

  • 2

    Trump puts America first; now billion people must pay for 300 million Americans.

    That is all about this fess; Europe too will pay a big price for this Trump mess up ..

  • 1

    The “Thousands” of answers for the rapid decline of the economy of the country can be found if all of us spare a little of our time to answer the question posted by “JD” in his comment, “WHY IDIOTS ARE RUNNING THE COUNTRY AND STUPID VOTERS ARE VOTING THEM”. The “SOLUTION” too can easily be found in the :ANSWER” to that question. If that question is not “ANSWERED” no “SOLUTION” would be found. The net result would be for all the “PANDITHAYAS” to continue “Discussions”; “Debate”; “Publish” theories and keep their “Wisdom” in DISPLAY, while still those “STUPID” voters would continue to put those :IDIOTS” to power with the added backing of these “INTELLECTUALS”. I recently saw at one of TV discussions one such “Pandithayas” (a MAHACHARYA) making a hearty laugh when the names of those traditional exports of “Tea”; “Rubber” and “Coconuts” were mentioned. He was talking of “MUDUTHAANGA” which I believe was “Digital and IT” and said that sector would bring US$ 5 billion and SHUNNED aside those “Traditional Exports”. This “IDIOT” – “Mahachariya” did not realize how much we have spent in “Dollar” terms to import thousands and thousands of metric tons to “IMPORT” rice to feed the twenty two million including his belly . “JD” : Please see the TV dramas these days and you are sure to see all these “IDIOTS” and “STUPIDS” who have and putting this country into a MESS. Re. that figure “Donald Trump” – He WORKS for America and what is WRONG with that? We too need not ONE “Donald Trump” but SEVERAL of such, who would WORK for our country.

  • 0

    Laksiri Fernando suggests that there is a ‘US$/SLR Conundrum’.
    The Trump rants created to our surprise a depreciation of almost all currencies against US$. Some more than others. I believe AUS$ depreciated more than SLR did.
    One cannot predict as to whether the trend will slow down or possibly reverse.
    Of course there is the need for a Balanced Economic Policy. MR is trying to gain votes and GoSL is somewhat furtive.

  • 0

    1918 is a fortunate year for Sri lanka as we did nothave to pay debt installment. WB predicted Sri lankan gorwth rate for Sri lanka for the year 2017 I suppose is 0%. Ranil still believes in leasing all the resources and money making usinesses would turn around things. Did they do any attempts to find hidden money. Even Ravi the thief said, that If they get back what Rajapakse group had stolen thery would settle the budget deficit. but, within months he was caught in the ;argest bank heist in Sri lankan history. that is humongous with respect to coutry’s economy and the value of the theft. Ranil the instigator, RAvi, Arjun Mahendran who operated it. Mali and KAbir supported it and 100s of those who made profits are outside. How you re going to stop the drain of the rupee value. Maithripala Knows all about it he can not expose as he did not know the extent of the theft at the time it was revealed to him.

  • 0

    Wait till the ECTA comes , mate…
    That is another story..
    Dr Ranil is now raising another 1.4 Billion USD to shore up the FX reserves..
    That is another 1.2 % hike in our Dollar Debt…
    Dr Ranil soon will have to use motorised Wheel Barrows to cart his Yahapalana Ruppiah to Money Changers to pay the loans….

    Argentina where there are Cattle Farms as big as half the Size of Lankawe ,can’t stop the Peso dropping like a meteor…..
    What hope Coomarasamy has to stop the Yahapalana Ruppiah going the Shit House, even with the help of Maggie and Mallika …

    Lankwe Economy is smaller than perhaps even where Dr laksiri’s Savings account is..
    And Dr Ranil keeps borrowing more and more now in USD ,after letting his Royal Buddy scoop up LKR 11 Billion as profit from the borrowing from the EPF, and BOC.

    Dr Dr Ranil is now Taxing even poor dudes who get some Income from their Sisters , Brothers and even parents who slog it out in the Middle East to pay Dr Mahrendran’s Ruppiah Loans.
    While paying their FX remittances to pay for Colombo Elites’ Luxury 4WDS and Wine & Cheese.

    Now those remittances are not enough to cover the Loan Instalments as the FX reserves have drooped o 7 Billion Last Month.
    That is why Dr Ranil is desperate And went see his mates in OSLO..
    Can Solly help to pay the Dollar Debt
    May be Dr Laksiri can answer it.

    Now Dr Ranil has nothing left to sell, except the Galle Matara Freeway, and Kandy Temple..
    No wonder Sira wants Mahinda to give him a Hand.
    May be Sira wants Mahinda to pull some strings with his mates in China .
    And rescue Lankawe which Dr Ranil’s U Beauty Economic Council. has F***** Up big time…

    • 1

      KASmaalam K A Sumanasekera

      “Lankwe Economy is smaller than perhaps even where Dr laksiri’s Savings account is..”

      Maybe true.
      Do you want to know the reason?
      Well you ought to audit and chase the paper trail of each transactions related to government spending, assets of politicians, their Benami (without name) and b***s carriers, state functionaries including members of armed forces, ….war expenses, ….. and you will find the missing part of the economy since 1971 is taken care of by the patriotic crooks.

      You would have received some crumbs which I suppose you have invested in blue chip foreign companies. I admire your patriotism.
      Now you have some explanation as to the missing economy, have a malt or two and play golf for and on behalf of the poor inhabitants.

      Why do you desperately want the Throne for Mahinda the war criminal/crook? What is in it for you? Some crumbs perhaps.

  • 2

    Last week US said “Hambantota Port could soon become a forward military base for Beijing’s growing blue-water navy”. US Dollar appreciation will not prolong and US Dollar will fall for a record lows in near future – just a matter of time. Not just South Asia, even EU is affected due to US’s crazy economic war that might become the first ever Economic World War 1.

    It is time rest of the world boycott US products

    1-Buy more Chinese products.

    2-Buy non-US software or push SL software industry.

    3-Buy oil from Iran, ignore US sanctions (India already started)

    4-SL Govt should push for USD based salary for BPO employees or cancel company license. Otherwise, these US based companies will continue to pay peanuts to Sri Lankans and sell their products for millions

    5-SL-Govt should relax on software piracy

  • 0

    US Vice President has said that China is going to use Hambantota as one of its Naval Base along the silk route.

    Sri Lanka is in the grip of China debt diplomacy. Sri Lanka is in the club of Bangladesh along with African debt ridden countries.

    Will Port city turn out to be a Ghost City just like Hambantota!

    Not Miralce of Asia !

  • 0

    Based on software, most of the time written by Asians, They try to establiosh monpoly. All industrial products have patent rights for five years.

  • 1

    Karma of massacre of innocent tamils -Beleive it or not .whats the developedment the governemtn acheived after killing and massacred the innocent tamils and LTTE ?
    God sake , nothing
    Foolish common men

    • 3


      It is called Karma. Innocent LTTE did not let the innocent Tamils to vote for innocent Ranil because innocent MR bribed the innocent LTTE.

      Innocent Fathima here.

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