…exporters gain little as deeper structural weaknesses persist

Sri Lanka’s weakening rupee is placing severe pressure on industries heavily dependent on imported raw materials, fuel, machinery, and spare parts, with small and medium enterprises (SMEs) facing the gravest threat to survival, according to Indhra Kaushal Rajapaksa.

Speaking to The Island Financial Review, Rajapaksa warned that while a depreciating currency may offer exporters temporary exchange gains, the broader economic impact is proving damaging across multiple sectors of the economy.

“Most businesses are struggling because Sri Lanka imports a significant portion of its industrial requirements. As the rupee weakens, costs rise sharply across the board,” he said.

Industries are responding through a combination of price increases, aggressive cost-cutting, delayed investments, and efforts to source cheaper alternatives. However, Rajapaksa stressed that many firms are operating under shrinking profit margins and mounting uncertainty.

“Companies are trying to survive by passing some costs to consumers, reducing operational expenses, and postponing expansion plans. But SMEs are under extreme pressure because they have limited reserves and weaker access to foreign currency,” he noted.

Rajapaksa observed that large corporates are better positioned to withstand currency shocks due to stronger balance sheets, export earnings, and greater financial flexibility. In contrast, smaller enterprises remain highly vulnerable to fluctuations in import costs and financing conditions.

He identified construction, vehicle imports, pharmaceuticals, electronics, logistics, and manufacturing industries reliant on imported inputs among the sectors worst affected by the rupee depreciation.

“These sectors depend heavily on foreign supplies. Every decline in the rupee immediately increases production and operating costs,” he said.

While export-oriented industries may appear to benefit from currency depreciation, Rajapaksa cautioned that the gains are often overstated.

“There is only a short-term conversion advantage when export earnings are brought back into rupees. But many exporters also depend on imported raw materials and machinery, so their own costs increase simultaneously,” he explained.

He added that the burden of currency depreciation ultimately falls on ordinary consumers through rising food prices, higher fuel and transport costs, more expensive imported goods, and accelerating inflationary pressures.

“Consumers are paying the price indirectly every day,” he said.

Rajapaksa acknowledged that some companies are attempting to localise supply chains and increase the use of domestic raw materials. However, he pointed out that Sri Lanka currently lacks the industrial scale and production capacity to fully replace imports competitively.

“There is growing interest in local sourcing, but Sri Lanka cannot produce everything locally at the required scale or cost efficiency,” he said.

The continued volatility of the currency is also affecting investor confidence, with businesses finding it increasingly difficult to plan ahead.

“Investors value stability. Frequent currency fluctuations create uncertainty and discourage both local and foreign investment,” Rajapaksa warned.

He called on the government to focus on stabilising the economy, strengthening foreign reserves, supporting SMEs and export industries, reducing unnecessary imports, encouraging local production, and ensuring consistent economic policies.

“Policy consistency is critical. Businesses need confidence to invest, expand, and create jobs,” he said.

Rajapaksa also cautioned that employment could suffer if economic pressures continue, particularly in import-dependent sectors and smaller businesses struggling to remain operational.

“Some export sectors may create opportunities, but it may not be enough to offset job losses elsewhere,” he observed.

Describing the current crisis as both cyclical and structural, Rajapaksa said Sri Lanka’s economic vulnerabilities extend beyond short-term currency movements.

“There are immediate pressures from both global and domestic financial conditions, but there are also deeper structural issues such as high import dependence, a narrow export base, and low productivity,” he said.

“Unless meaningful structural reforms are implemented, these problems will continue to recur.”

By Ifham Nizam