Sri Lanka’s uphill task to maintain economic stability

• President Dissanayake recently said that the price of diesel would have to be increased to about Rs. 720 per litre due to increase in prices in the global fuel market

Sri Lanka is often vulnerable to exchange rate fluctuations like what it is experiencing at the moment. For the common man, a depreciating rupee means that the cost of living is expected to be much higher than his or her income. This is also bad news for a country that is recovering from a recent economic collapse. Explaining reasons for the depreciation of the rupee at the Committee on Public Finance, Central Bank Governor Dr. Nandalal Weerasinghe said that it is a reflection of shifting global market conditions rather than internal economic mismanagement. In 2022, Sri Lanka experienced a historic economic collapse where the rupee depreciated from Rs. 200 to Rs. 360 against the dollar.

This was largely due to domestic mismanagement, aggressive money printing to suppress interest rates, massive tax cuts in late 2019, and critically depleted foreign exchange reserves. Dr. Weerasinghe explained that fuel import bills for the Ceylon Petroleum Corporation over the past four months have totalled Rs. one billion, whereas the entire bill for 2025 was around Rs. 1.5 billion. A slowdown in the tourism sector and the export market not performing to the same extent as the import market are other reasons impacting the rupee. President Dissanayake recently said that the price of diesel would have to be increased to about Rs. 720 per litre due to increase in prices in the global fuel market. He said that the government is currently bearing a subsidy of approximately Rs. 100 per litre in order to provide diesel to the public at Rs. 392 per litre. Due to the depreciating rupee the price of imported milk powder has once again been revised with effect from May 20, 2026. Hence the price of a 400g pack of imported milk powder has been increased by Rs. 50, while a 1kg pack will be increased by Rs. 125. The price of milk tea was increased by Rs. 5. Private bus owners have claimed that the minimum bus fare would increase to Rs. 40 following the upcoming annual revision in July. Therefore, once the rupee starts depreciating it affects the common man in unprecedented ways, pushing them towards more vulnerabilities. According to the Department of Census and Statistics, as of March 2026, Sri Lanka’s official poverty line was recorded at Rs. 16, 690. At district level, Colombo continued to record the country’s highest poverty line at Rs. 18,000 per person per month in March 2026. Although marginally lower than the Rs. 18,044 reported in January 2026, Colombo remains the most expensive district in terms of meeting minimum living requirements. One might even wonder how a family could be raised with an income less than Rs. 20,000. These figures highlight the sharp rise in Sri Lanka’s cost of living over recent years. The national poverty line stood at Rs. 6,966 in 2019 before increasing to Rs. 13,838 following the rebasing of the National Consumer Price Index in 2021. People may start blaming the government for these economic challenges. It becomes political the moment economic vulnerabilities are being announced. But the situation is different to what people experienced in 2022. However, the clock is ticking faster if the government doesn’t take steps to address these matters with maturity. Rather than borrowing and implementing unsustainable subsidies, the government needs to be transparent in this process. In addition, they also need to ensure social protection by providing welfare schemes to vulnerable groups. According to the Governor, Sri Lanka expects around USD 700 million from the International Monetary Fund (IMF) early next month, alongside a further USD 250 million from the Asian Development Bank (ADB) and World Bank. Many of these entities have commended Sri Lanka for its strong macroeconomic recovery and external shocks such as the conflict in the Middle East are likely to add pressure to all economies globally. The brighter side of the story is that Sri Lanka is not as vulnerable as it was in 2022. But actions and mature decisions to remain economically stable matters at this point.