The Sri Lankan Rupee is sliding. It is Rs. 170 to a dollar at the time of writing this article. On January 1, 2018 it was only Rs. 150 to a dollar. That means a 13.3 percent devaluation in the last 8 months. It is apprehensive to speculate on when and at what point it would stabilize.
External causes are mainly responsible for this situation. The trade war initiated by the United States against China, EU, Canada and Mexico has caused the commodities produced by these countries more expensive and US goods relatively cheaper. Besides the United States has imposed sanctions on Iran and Russia and it penalizes even third countries for trading with those countries. Thus, the rule-based international trading system is disturbed. The demand for the dollar has increased causing it to appreciate vis-à-vis other currencies.
In addition, Sri Lanka’s trade deficit has widened on account of the value of imports exceeding that of exports. In 2017 Sri Lanka’s trade deficit reached US $ 9.4 billion. It is expected to be around US $ 10 billion this year. This is despite a slight increase in exports. The volatile situation in the Middle East and sanctions on Iran have caused world oil prices to swell. It is another factor pushing up import costs.
