The plunging Sri Lankan rupee, a political stalemate, and the coming holiday season, are threatening to further stall imports and impair supplies in the island nation battling one of its worst economic downturns.
On Thursday, the Sri Lankan rupee hit a new record low at 310 (roughly ₹ 79) to a US dollar officially, signalling a steep fall in the span of a month. The buying and selling rates on the black market are about 400, according to traders.
Although the Sri Lankan rupee has been declining in value since the pandemic hit in 2020, it began dropping rapidly after March 7, when the Central Bank of Sri Lanka devalued it from LKR 200 to 230 against the American dollar, to allow for "greater flexibility" in exchange rate. The move was also deemed necessary to obtain support from the International Monetary Fund.
“In fact, the Sri Lankan rupee has been hitting a record low every day after that,” said Nisthar Cassim, Editor of the Colombo-based business newspaper Daily Financial Times. The rupee is “still struggling to find its level in the market”, he observed, pointing to dwindling inflows by way of worker remittances, and larger bilateral borrowings that are yet to materialise.
For months now, Sri Lanka is grappling with severe shortages and high inflation amid an aggravating forex crisis. Citizens and professionals are taking to the streets in large numbers every day, in a show of rare, nation-wide public outrage against the Rajapaksa administration. On Sunday, cabinet ministers and top officials stepped down, amid the massive wave of protests demanding that the President and the ruling clan immediately quit office for “failing” the country.
Already in the grip of an economic meltdown, Sri Lanka now faces a political conundrum, with President Gotabaya Rajapaksa refusing to resign despite mounting calls, and the Opposition rejecting his offer to form a national cabinet under him.
It is this political impasse that is making the rupee plunge further this week, Mr. Cassim contended. As of Thursday, Sri Lanka does not have a Finance Minister, among other key ministers and officials, following the spate of recent resignations.
“Given this political instability and market uncertainty, exporters are putting off conversion, and it’s a double whammy for importers to cope with the sliding rupee and to actually find dollars which are not easily available,” he told The Hindu. The importers’ challenge, he anticipates, would soon translate to a severe shortage of essentials from food to medicines. “This is only the beginning of the shortages and high prices, as the rupee will remain under growing pressure.”
The government has declared April 11 and 12 as public holidays, ahead of the Sinhala and Tamil New Year holidays, one of the biggest festivals in Sri Lanka, effectively shutting down the country for the whole of next week. Traders and citizens fear the move might further impact supplies.
On Thursday, leading exporters, importers, and traders in Sri Lanka wrote to the Parliamentary Speaker, party leaders and lawmakers, seeking urgent action to avert a “economic catastrophe”. They sought political stability by the end of the week, and “a pragmatic interim solution” from sitting MPs along with the executive branch to address the concerns of citizens that has led to a massive public uprising, the Ceylon Chamber of Commerce said in a statement.
The Parliament convened on Thursday, as legislators debated the crisis for the second day. While those left in government – 42 MPs are sitting separately – sought to defend its moves, opposition MPs slammed the President for his crisis response.
