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Rupee: To depreciate or not to depreciate

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The intention of the government was to reduce imports and encourage exports. The policy document, ‘Vistas of prosperity and splendour’ page 36 refers to reducing the trade deficit and go for import substitution and encourage exports. So, the general public have expected imports to come down in 2021. In fact, the imports have gone up to US$ 20.6 billion in 2021. This may be partly due to the fixed exchange rate policy of having relatively lower value for US$ in rupee terms and high international prices of commodities. The trade deficit has also increased to US $ 8 billion as export revenue was US$ 12.5 billion, which is an increase from 2020 and 2019 export figures of US$ 10 billion and US$ 11.9 billion respectively.

I give below actual expenditure on Imports of selected consumer food items (In US$ million): (See Table 1)

It is also evident from the Central Bank data published, the spending on import of vegetables incl. onions, potatoes, which was US $ 353 million in 2020 has further increased to US $ 384 million in 2021. The Country has spent some US $ 1.4 billion on these four items of imports which is more that the export revenue from Tea (US$ 1.3 billion) How did Sri Lanka manage to bear this high import bill and finance the deficit?

Our foreign exchange revenue was not enough and, therefore, we were compelled to borrow funds through foreign loans and have also used our valuable foreign exchange reserves to pay for these imports and to repay foreign loans amounting to US$ 6 billion. In 2021, the FDI figure is only US $ 560 million and foreign remittances are also US$ $ 5.5 billion only. If this trend continues, our obligations on foreign debt will increase further.

Compared to other regional counterparts, Sri Lankan export performance has been declining. Exports as a % of GDP has been declining during the last 12 years. The export performance reflects 26% of the GDP during the two decades ending 1999 in 1980’s and 90’s. However, the next two decades commencing 2000 to end 2019, the export performance of Sri Lanka has drastically declined to 16% of the corresponding GDP figures. (See Table 2 – How trade deficit widens during the four decades (Annual Average in US$ billion)

As can be seen, our trade deficit during the period 2010 to ‘19 has widened to 78% of total exports and our exports as a % of GDP has also decreased from 28% during the period 1990-99 to 14% during the ‘10 years period’ of 2010 to ‘19. In fact, it was an average of only 13% during the period 2015 to ‘19.

The exchange rate policy has created competitiveness issues for exporters, as external trade counterparts have become more competitive at the global market place due to their currencies getting depreciated at a faster rate. We would like to see our rupee getting strengthened but reality is because of continuous trade deficits, our rupee has been depreciating. If the $ is artificially controlled and fixed at Rs 202/ then it’s an encouragement for importers to buy $s even at higher rates from the black market and arrange import of goods. This is because they know that in future, the rupee will further depreciate.

The exporters will also discourage themselves to convert $ at this rate. As a result, now some exporters have become indirect importers outside the banking system, some get extra Rs 25 per US $ from importers outside the system. However, allowing rupee to float freely depending on market forces (will automatically depreciate the rupee further) will also create serious issues such as revaluing the foreign debt portion and the book value of the debt servicing will go up and thus increasing the budget deficit further. The cost of living will skyrocket, as the imported goods will cost more, nevertheless it’s a disincentive to go for non-essential imports and encourage to look for domestic alternatives.

As I mentioned, the intention of the government was to curtail and reduce import expenditure and encourage exports, however, both the current account deficit as well as government budget deficits are ever increasing. From the above economic indicators, it can be seen that during the last seven years, the economic situation got severely affected, out of which during the last two years, it was mainly due to Covid-19, quite apart from structural weaknesses.

No FDIs nor foreign remittances will flow in without addressing those structural weaknesses in the macroeconomic fundamentals- if not inflation will skyrocket and banks are compelled to raise interest rates as well. Foreign inputs such as fossil fuel and fertiliser need to be partially replaced with domestically sourced materials and other inputs as far as possible. It is in that context only the Presidents renewable energy initiatives and green natural agriculture methods need to be viewed. India and Kenya and many other countries have also decided to follow these initiatives in order to address ever increasing social and environmental costs associated with not adopting mitigating strategies to overcome climate change ill effects globally.

It is necessary to keep a close tab on spending foreign exchange on non-essential imports every month. The government needs to deploy people including our armed forces in the agriculture sector and farming activities coupled with appropriate technology and increase domestic production utilising our arable underutilized agricultural land based on a carefully prepared crop calendar for different districts.

Jayampathy Molligoda



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Opinion

Sri Lanka’s geopolitical positioning for future prosperity

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Kariyawasam

By Chula Goonasekera
For the LEADS Forum (admin@srilankaleads.com)

Sri Lanka’s future prosperity will depend on how effectively it positions itself within an increasingly complex global environment. At a recent LEADS Forum discussion (https://youtu.be/Bbr3e_qU1Fw), veteran diplomat Prasad Kariyawasam, former Secretary to the Ministry of Foreign Affairs, High Commissioner to India, Ambassador to the United States, Ambassador /Permanent Representative to the UN in New York and Geneva —outlined the strategic choices Sri Lanka must make to secure long term stability and economic advancement. Kariyawasam offered a rare blend of historical perspective, diplomatic experience and practical guidance.

His central message was clear: Sri Lanka must exercise strategic agency—engaging all major partners while safeguarding its national interests.

Foreign Policy as an Extension of National Aspirations

Foreign policy, Kariyawasam emphasised, is inseparable from domestic priorities. As your text notes, “foreign relations often reflect the medium- and long-term aspirations of a country’s people and its leadership.” Governments must therefore craft external relations that reflect the public’s economic and social expectations, avoiding short-term political impulses that undermine long-term national interests.

For a small nation, foreign policy cannot be symbolic or personality driven. It must be purposeful, pragmatic and directed towards the security and prosperity of the people.

A History of Global Connectivity

Sri Lanka’s history demonstrates that the island has never been isolated. From ancient ties with India and Southeast Asia to Arab, Persian and Chinese maritime networks, the island prospered when connected to the wider world. We must realise that “geography creates opportunity, but geography alone does not create prosperity.” Institutions, infrastructure and policy determine whether geographic advantage becomes economic success.

Colombo’s emergence as a cosmopolitan trading hub and Galle’s role as a resupply station for Indian Ocean shipping in colonial times , illustrate how deeply Sri Lanka has been embedded in global commerce for centuries.

Lessons from Asia’s High Performers

Kariyawasam highlighted the experiences of Japan, South Korea, Taiwan, Singapore and Vietnam. Their paths differ, but their success rests on common foundations:

• investment in human capital and infrastructure

• merit based institutions

• integration into global markets

• attraction of investment and technology

• export oriented industries

• strategic engagements with both China and Western economies

The lesson for Sri Lanka is not imitation but continuous adaptation and constructive integration with the global economy.

India: Sri Lanka’s Closest Major Partner

India’s transformation into a global economic power presents Sri Lanka with both opportunity and responsibility. India is already Sri Lanka’s largest source of tourists and a major investor. Kariyawasam states, “The larger question is how effectively Sri Lanka can participate in and benefit from India’s growth.”

A partnership should encompass modern, more open pathways for trade, investment, logistics, energy, technology, digital services, education and professional mobility—And asymmetry between the two economies must be handled with maturity and foresight, seeking special and differential treatment .

China and Other Global Partners

China remains a significant economic partner. Sri Lanka must avoid viewing this relationship through a zero sum lens. The goal should be productive and transparent engagement, ensuring better terms of trade and meaningful technology transfer.

Equally Important relations must be nurtured with the United States, European Union, United Kingdom, Japan, Australia, ASEAN and the Gulf.

All these relationships can be vibrant partnerships that does not lead towards , dependency but mutually beneficial pragmatic arrangements .

A Fragmenting International System

Global geopolitics is becoming more volatile. Trade tensions, wars, sanctions, supply chain disruptions, climate change and technological competition increasingly shape national security. We must realise, “foreign policy cannot be separated from economic policy.”

Sri Lanka’s recent economic crisis demonstrated the importance of international confidence, access to finance and resilient supply chains. Energy security, food security, cybersecurity and digital infrastructure are now core elements of national strategy.

Strategic Agency: The Guiding Principle

Sri Lanka must avoid becoming an arena for great power competition. Strategic agency means making decisions based on national interest, expanding Sri Lanka’s choices, not restricting them.

India is essential. China is important. The United States, Europe, Japan, Australia, ASEAN and the Gulf are important. The objective is a web of partnerships that strengthens resilience and autonomy.

Sri Lanka’s Strategic Assets

1. Location: Sri Lanka’s geography is a long standing advantage. Ports such as Colombo, Hambantota, Trincomalee and Galle can become specialised hubs—if connected to logistics, manufacturing, services and exports.

2. Digital Connectivity: Submarine cables, data centres, cloud services and cybersecurity are now as important as physical geography. Sri Lanka can turn its location into both a maritime and digital advantage.

3. Tourism and Natural Heritage: The focus should shift from tourist numbers to value creation—wellness, heritage, ecotourism, cruise tourism, education and MICE tourism.

4. Human Resources and Demographics: High literacy is no longer enough. Skills in technology, engineering, AI, logistics and advanced manufacturing are essential, especially with an ageing population.

5. Migrant Workforce: Migrant workers are a strategic asset, not merely a source of remittances. Bilateral labour agreements, skills recognition and diaspora engagement should be central to foreign policy.

Requirements for Sustained Prosperity

Sri Lanka’s future depends on:

• peace and security

• access to international markets

• productive investment

• a skilled, productive workforce

• modernised agriculture

• higher value tourism

• demographic preparedness

• climate resilience

• strong, predictable institutions

Please note that “foreign policy can open doors. Domestic institutions determine whether we can walk through them.”

The Role of the State

Sri Lanka does not need a larger state—only a more capable one. Policy continuity, professional institutions, predictable regulation and reduced corruption are essential. Geography does not change; long-term national interests do not change. Intentional relationships built over decades should not be reinvented with each election cycle.

Building Trust Internationally

Trust is a strategic asset. Sri Lanka must be known as a country that honours commitments and maintains predictable policies. This is vital not only for diplomacy but also for investment and long term partnerships.

Avoiding Zero Sum Geopolitics

Sri Lanka does not need to choose between India and China, or between Asia and the West. The task is to identify what each relationship can contribute to national development while protecting sovereignty and freedom of decision making.

Sri Lanka’s geography is an inheritance, but prosperity is not guaranteed. The world is changing rapidly—great-power competition, technological disruption, and climate vulnerability demand a foreign policy that is pragmatic, adaptive, and anchored in national interest.

Sri Lanka must build partnerships without dependencies, maintain strategic agency without isolation, and integrate with the global economy while strengthening domestic capacity.

“We cannot change where Sri Lanka is. We can, however, determine what Sri Lanka becomes because of where it is”

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Opinion

A tariff deal with the US? Make haste slowly

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by Gomi Senadhira

Sri Lanka’s former ambassador to the United States Mahinda Samarasinghe is back in Sri Lanka lobbying for speedier finalisation of a new tariff deal with the United States. According to news reports, delivering the keynote address at the Sri Lanka Institute of Directors’ Annual Meeting last week, he stated, “I have recommended very strongly to the government that we need to conclude the agreement so that we can lock in the very favourable tariff rate that Sri Lanka has got up to now“.

I do not understand why the former ambassador is urging the government to expedite the finalisation of a new tariff deal or what is “the very favourable tariff rate” he refers to in his speech. However, given the ongoing terrible tariff turbulence in the United States and the fragile economic situation in Sri Lanka, I believe, this is not the right time to rush into finalising any trade agreement with the United States. I am also of the opinion that at this juncture Sri Lanka should maintain strategic patience and explore all available options.

Lessons from the countries that rushed for trade deals

To better comprehend this, let’s look at experiences of the countries that rushed to conclude tariff deals with the United States after President Donald Trump declared his “reciprocal tariffs” under the International Emergency Economic Powers Act (IEEPA) in April 2025. As Samarasinghe stated in his keynote, “The bottom line on all these negotiations was that every country that finally agreed to sign the agreement had to give either complete duty-free access for American exports into those markets, or near complete duty-free access.” In exchange for these tariff concessions and other market access commitments these countries managed to get the newly introduced country specific “reciprocal tariffs” reduced.

However, in February 2026, the Supreme Court of the United States (SCOTUS) struck down these “reciprocal tariffs” under the IEEPA. With that, the market access gains these countries received in exchange for complete duty-free access for American exports into their markets evaporated under U.S. domestic law. By moving too fast to conclude bilateral tariff agreements with the United States these countries are now bound to strict obligations whereas the benefits they bargained from the U.S. administration are not worth the paper those were written on.

Sri Lanka’s experience

In April 2025, President Trump declared his “reciprocal tariffs” and labelled Sri Lanka as the worst offender, imposing one of the highest additional duties at 44%. Since then, Ambassador Samarasinghe and other negotiators have managed to negotiate this down to 20%. I do not know what the deal was through which Sri Lanka managed to reduce the 44% tariff to 20% or what we gave in return for this “concession.” However, what we received in return has absolutely no value after the decision by the SCOTUS.

Current state of US tariffs

After the decision by SCOTUS, the U.S. administration introduced a temporary 10% additional tariff on all countries for 150 days. At the end of that period, this 10% tariff was replaced by a new “forced labor tariff ” of 10% to 12.5% on all trading partners under Section 301 of U.S. trade law. Twenty-five U.S. states and several small businesses have already filed lawsuits against these tariffs in U.S. courts. This new “forced labour tariff ” on Sri Lanka was first fixed at 12.5%. Later, after President Anura Kumara Dissanayake issued a gazette notice prohibiting the importation of goods produced using forced labour, it was reduced to 10%. That means Sri Lanka has already made a substantial commitment to receive this “tariff concession,” and I presume our negotiators understand the implications of this commitment.

Make haste slowly

After President Trump imposed 44% “reciprocal tariffs” on Sri Lanka, through an article published in The Island on 25th April 2026 (), I urged the government to engage immediately with the US administration on these tariffs. However, I also emphasised that the best way to move forward was to make haste slowly.

Two millennia ago, Augustus Caesar, the first emperor of Rome, frequently used the phrase, “make haste slowly”, because he detested rashness and haste in his military commanders. It was the recurring guiding maxim that he emphasised throughout his 40-year imperial rule. After 2000 years, this classical oxymoron remains a definitive golden rule for professional trade negotiators. More importantly it is the exact blueprint required when navigating turbulence in trade negotiations with the Trump administration.

The endgame – The most dangerous moment in trade negotiation

Samarasinghe has also stated the agreement is 90% complete. Any experienced trade negotiator should know that the final 10% contains high-stakes provisions and is the most dangerous moment in a trade negotiation. A single misplaced comma or ambiguous product description in a tariff schedule can cost millions through unintended loopholes. Rushing this last stretch to secure a deal can permanently expose Sri Lanka to sudden shifts in American trade policy, heavy compliance costs, or strict enforcement under Section 301 regarding supply-chain labour standards. Hence, this is the time for strategic patience.

(The writer can be reached at senadhiragomi@gmail.com)

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Opinion

Buddhist law and constitutional amendments

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Upon reading the article titled “Prof. Pieris says Buddha Dhamma recognized as source of law under Constitution” (Island, September 12, 2026), the classical Sinhala idiom “Yanne Koheda? Malle Pol” immediately comes to mind. The expression, translating literally to answering “I have coconuts in my bag” when asked “Where are you going?”, underscores a complete disconnect in logic. Because it is uncertain whether the article accurately represents the professor’s precise words, the following critique addresses the contents of the report rather than the speaker himself.

The central premise of the report concerns a statement delivered by the Chief Justice regarding a petition filed against the 22nd Amendment to the Constitution. According to the report, the Chief Justice’s observation that the determination would be made strictly on the basis of established law rather than Buddhist teachings was characterised as a “cavalier dismissal” of the Buddha Dhamma. This assertion carries a host of unexamined assumptions. Had the writer specified precisely which tenets of the Buddha Dhamma were violated, a direct legal or philosophical evaluation could take place. However, no specific Buddhist tenet or law was identified as having been transgressed, and for good reason: no such statutory legal framework exists within the Buddha’s teachings.

To understand the flaw in this argument, one must examine the constitutional context alongside the canonical meaning of the terms involved. Article 9 of the 1978 Constitution of Sri Lanka mandates that the Republic shall give Buddhism the foremost place and that it shall be the duty of the State to protect and foster the Buddha Sasana, while guaranteeing the fundamental rights of all religions under Articles 10 and 14(1)(e).

While “Buddhism” and “Buddha Dhamma” are frequently used as interchangeable terms in casual dialogue, they represent distinct concepts. “Buddhism” is an umbrella term coined by 19th-century Western scholars to classify the global institutionalised religion, incorporating its diverse sects, cultural traditions, rituals, and socio-political histories. Conversely, Sasana is the ancient term designating the structural framework established by the Buddha to preserve and transmit his teachings, comprising the monastic order (Sangha) and its supporting institutions.

In classical Theravada commentarial literature, the Sasana operates as a functional three-tiered structure. It encompasses Pariyatti Sasana, the preservation and study of sacred texts; Paṭipatti Sasana, the practical execution of the doctrine through ethical conduct and meditation; and Paṭivedha Sasana, the direct experiential realization of ultimate truth, or enlightenment. This structural breakdown raises fundamental questions about state capacity. While a state can readily support Pariyatti Sasana through academic institutions, textual preservation, and educational funding, it cannot legislate or enforce Paṭipatti or Paṭivedha. Practical engagement and spiritual realisation are inherently internal, first-person experiences. Expecting the state to codify or guarantee enlightenment is a conceptual impossibility.

Furthermore, the Buddha Dhamma refers specifically to the unconditioned truths of existence and the teachings imparted to realize them, including the Four Noble Truths, the Eightfold Path, and Dependent Origination. As the late Venerable Professor Kotagama Wachissara Thera observed, there is no rigid ideologue or “ism” in the core Dhamma. The teachings do not constitute a system of divine commandments or a legal statute enforced through reward and punishment. Rather, Buddhist ethics function as self-directed guidelines for psychological clarity and moral inquiry. Even the Vinaya Pitaka, which contains explicit rules of conduct, functions as an internal monastic code rather than a civil or criminal law intended for the laity.

Throughout the Pali Canon, guidance regarding governance focuses on the moral character of leadership and the social duties of statecraft rather than rigid legal codification. In discourses such as the Cakkavatti Sihanada Sutta (DN 26), the Buddha observes that social instability and crime cannot be eliminated solely through punitive measures, emphasising instead that states must provide economic opportunities, fair wages, and resource distribution to maintain societal balance. Crucially, in the Maha Parinibbana Sutta (DN 16), the Buddha explicitly highlights the importance of respecting established laws and traditions rather than enacting arbitrary regulations.

The natural laws articulated in the Dhamma, such as the law of cause and effect or the three characteristics of existence, govern all phenomena universally, regardless of legal statutes or personal belief. They are not human laws to be applied or suspended by a court of law. Therefore, characterizing the Chief Justice’s adherence to constitutional jurisprudence over religious doctrine as a “cavalier dismissal” lacks logical and textual foundation. Framing the judiciary’s adherence to legal precedent as an attack on the Dhamma distracts from fundamental constitutional principles and risks misguiding the public for political ends.

Geewananda
Gunawardana,
Ph.D.

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