Sri Lanka warned of Rs. 380+ emergency measures needed now not tomorrow - Former Diplomat Kananathan

Colombo, May 22 (Daily Mirror) - Sri Lanka’s rupee has once again come under severe pressure, sliding rapidly to around Rs. 354 against the US dollar this morning, raising fresh concerns about the country’s fragile external sector and declining foreign reserve position.

Market sentiment remains extremely weak, and now that the rupee could depreciate even further into the Rs. 380-plus range in the coming days if urgent corrective measures are not taken. Such a rapid slide would be deeply alarming for an economy still recovering from its worst financial crisis in history.

While the expected inflow of nearly US$1 billion in IMF, World Bank, and ADB-related financing may provide temporary relief, but these inflows alone cannot deliver long-term currency stability because they are primarily loans — not permanent foreign exchange earnings.

The upcoming multilateral funding package is expected to improve short-term liquidity, strengthen market confidence, and ease immediate dollar shortages in the banking system. It may also temporarily stabilize or modestly strengthen the rupee as the Central Bank gains greater capacity to supply foreign exchange to the market.

Unlike export earnings, tourism receipts, remittances, or FDI”s - long-term foreign direct investment, these inflows do not create a sustainable improvement in Sri Lanka’s foreign exchange earning capacity. In essence, the country is receiving temporary breathing space — not a permanent cure.

Sri Lanka”s external vulnerability remains significant. If the country continues to permit uncontrolled imports of luxury and non-essential goods while relying on borrowed dollars to stabilize the economy, reserve pressure could intensify once again in the coming months. The sharp depreciation of the rupee itself is already a warning signal that markets remain nervous about long-term dollar availability and debt sustainability.

Against this backdrop, the President must seriously consider temporary restrictions on non-essential and luxury imports until currency stability and reserve adequacy improve. At a time when every dollar matters, scarce foreign exchange should be prioritized for fuel, medicine, food, industrial raw materials, energy, and debt servicing obligations — not luxury consumption.

Particular attention must be given to vehicle imports. Sri Lanka is already witnessing a massive outflow of dollars on non-essential vehicle purchases at a time when the economy is still recovering from its economic collapse. Allowing excessive vehicle imports under current conditions could place even greater downward pressure on the rupee and accelerate reserve depletion.

A temporary ban on luxury and non-essential vehicle imports would help reduce dollar outflows, support the rupee, stabilize reserves, and improve the balance of payments position. Such measures may be unpopular in the short term, but economic stability must take precedence over consumption-driven imports.

Sri Lanka can also draw lessons from neighbouring India. Under the leadership of Narendra Modi, India has consistently prioritized economic self-reliance, controlled unnecessary imports in strategic sectors, encouraged domestic production, and protected foreign exchange reserves during periods of global uncertainty. While Sri Lanka’s economy is far smaller and structurally different, the principle of disciplined import management during times of external pressure remains highly relevant.

The country cannot afford another balance of payments crisis fueled by avoidable dollar outflows. The IMF and World Bank inflows may temporarily strengthen confidence and liquidity, but loans alone cannot permanently strengthen the rupee. Sustainable currency stability will ultimately depend on export growth, tourism recovery, higher remittances, productive investment, and prudent import management.

Temporary sacrifices today may be necessary to protect Sri Lanka’s long-term financial future.