The Sri Lankan government attributes the recent sharp decline of the Sri Lankan rupee against the US dollar to the ongoing conflict in West Asia, which has driven up import costs and increased demand for the US dollar.
Key Points
- Sri Lanka blames the West Asia conflict for the sharp fall of the Sri Lankan rupee against the US dollar.
- Increased oil prices and shipping disruptions due to the conflict have escalated import costs for Sri Lanka.
- The Sri Lankan government expects over USD 1200 million from international lenders by the end of the month to ease pressure on the rupee.
- The IMF has endorsed the Sri Lankan economy, noting significant progress in restoring macroeconomic stability.
- The Sri Lankan rupee depreciated by over 4.8 per cent since January this year.
The government on Friday said the sharp fall of the Sri Lankan rupee against the US dollar was caused due to the war in West Asia and not a reflection of its management of the local economy.
Deputy Minister of Finance Anil Jayantha Fernando's comments came a day after the endorsement by the International Monetary Fund's (IMF) of the local economy and the government's expectation of over USD 1200 million influx from international lenders by month end.
Impact Of West Asia Conflict On Sri Lankan Economy
Sri Lankan rupee (LKR) closed at 329.00/331.00 to the US dollar in the spot market on Friday, after trading at 342.00/350.00 the previous day, local media reported.
Fernando told reporters here that the conflict in West Asia had caused international cost escalations in case of gas, fertiliser, shipping and insurance in addition to oil prices.
"The oil price increased sharply during March and April. By May, the fuel import bill has risen to USD 521 million from around USD 120-200 million," the minister said.
"The demand for the US dollar has increased, which was why the dollar rose unusually to over LKR 350 yesterday," Fernando said.
International Lending To Stabilise Rupee
Since the US and Israel launched a joint attack on Iran in February last week, there have been shipping disruptions in the Strait of Hormuz, which carries nearly 20 per cent of global fuel, and resulted in elevated crude oil prices across the world.
The Sri Lankan government is expecting the situation to ease after it receives tranches from the international lenders.
The double tranches worth USD 700 million from the IMF are due after May 27 in addition to USD 400 million from the Asian Development Bank (ADB) and a further USD 150 million from the World Bank, the minister said, adding, these are expected to relieve the pressure on the rupee.
IMF Endorsement And Rupee's Performance
Analysts said following Thursday night's endorsement by the IMF of the local economy, the rupee gained somewhat this morning against the dollar.
The rupee had depreciated by over 4.8 per cent since January this year.
The IMF Sri Lanka chief Evan Papageorgiou, in a LinkedIn post said, "Sri Lanka's policy framework today is considerably stronger than in the past."
"Over the past years, the authorities have made significant progress in restoring macroeconomic stability, rebuilding reserves and strengthening confidence," he said.
The island nation received nearly USD 3 billion 48-month facility when it declared its first-ever sovereign default in 2022.
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