Sri Lankan Rupee (LKR) has
been depreciating very fast no like in past. According to CBSL LKR was
depreciated in 2015 – 9.9%, 2016 – 3.98%, 2017 – 2.04%. However, as of September
2018, depreciation was recorded as 10.43%.
Due to the depreciation
of LKR, Sri Lanka will have to face many problems. Main problem will be increase
the foreign debts. Loans obtained in USD would be increased by 10.43% percent
purely because of depreciation of LKR (assuming no interest is accumulated).
Further, this will lead
to increase the balance of payment (BOP) deficit. In the period of January –
June 2018, exports were reported as USD 5,731.86Mn (2017 – USD 5,397.55Mn) and
imports were reported as USD 11,441.07Mn (2017 – USD 10,148.99Mn) making a BOP
deficit of USD 5,709.21Mn (2017 – USD 4,751.44Mn). As long as the first quarter
is concerned USD deficit in BOP has been increased by 20%. However, for the
same period LKR deficit in BOP has increased by 24%. This was purely because of
LKR depreciation against USD. Thereby, it can be expected that current LKR
depreciation would impact on BOP adversely than in the past.
LKR depreciation has
been linked fuel prices through price formula. Hence, general public can expect
a fuel increase on 10th day of every month unless fuel prices are
decreased in rate greater than LKR depreciation rate. This will also lead to increase
in general price level in Sri Lanka.
Today, business
environment is very uncertain. There is a low ability for prediction. LKR
depreciation has created this situation more difficult.
