Sri Lanka It's Happening

June 16, 2004

So far this year the dollar as appreciated by over 5% against the Sri Lankan rupee, if anything the rate of change seems to be increasing over the last few days, are we run on the rupee?

The government and it's appologists will try to say that this is very good for exporters. On the surface it is but things are more complicated than that. Take the garment industry as an example. This happens to be Sri Lanka's biggest export, yet this industry needs to import huge quantities of fabric, thread and machinery to survive. The dollar gaining in strength makes it harder to import them.

Then what about the fuel supply? Sri Lanka imports 100% of it's petrolium requirement, most of it as crude oil some of it as refined products. It's bad enough that the oil prices are at an all time high but couple that with an all time high of the dollar and you have a potential economic disaster on your hands.

Because Sri Lankan governments are known for their collective stupidity, instead of increasing the street price of oil (price is controlled). The government has instead chosen to absorb these losses. This leads to a further erosion of the foreign currency reserves, which in turn leads more pressure on the rupee.

Posted by raditha at June 16, 2004 12:27 PM