Features
Depreciation of the Rupee: A Warning Sign of Sri Lanka’s Deep Economic Crisis
The gradual depreciation of the Sri Lankan rupee is one of the most serious economic signals facing the country today. It is not merely a change in the exchange rate. It is a powerful reflection of a nation’s economic strength, fiscal discipline, investor confidence, political stability, and the future hopes of its people.
When a country’s currency loses value, it indicates deeper weaknesses in production capacity, foreign exchange earnings, economic management, and institutional credibility. In this sense, the depreciation of the rupee is not an isolated financial issue. It is a factor that further deepens Sri Lanka’s already fragile economic, social, and political crisis.
Only a few years ago, around Rs. 130 or Rs. 150 was sufficient to buy one US dollar. However, during the 2022 economic crisis, the exchange rate exceeded Rs. 360 per dollar at certain points. Although some stability has returned since then, it would be misleading to say that the real strength of the rupee has been fully restored. The simple meaning is this: Sri Lanka now needs far more rupees than before to import essential goods such as fuel, medicine, food, machinery, and raw materials.
Inflationary Pressure in an Import-Dependent Economy
The first and most direct consequence of rupee depreciation is the increase in the general price level of goods and services. In other words, it fuels inflation. Sri Lanka remains an economy that depends significantly on imports. According to World Bank data, in 2024, imports of goods and services accounted for around 22.5% of Sri Lanka’s Gross Domestic Product.
Therefore, whenever the rupee weakens, the cost of imports rises. Fuel prices increase. Transport costs go up. Industrial production costs become higher. Eventually, this burden falls directly on the daily lives of ordinary people.
In September 2022, inflation in Sri Lanka, measured by the Colombo Consumer Price Index, reached 69.8%, while food inflation climbed to 94.9%. These were not just numbers. They represented real suffering in family food budgets, children’s education, healthcare expenses, and the living standards of the middle class.
As a result, poverty also increased. According to World Bank estimates, urban poverty rose to 15% in 2022, while rural poverty increased to 26%. The data also showed that more than half of the population in estate communities lived below the poverty line.
The Silent Crisis of Fixed-Income Earners
Those most affected by rupee depreciation are people who depend on fixed salaries. Their income may remain the same in numerical terms, but its real purchasing power continues to decline.
A person earning Rs. 100,000 per month today finds it extremely difficult to maintain the same standard of living that was possible a few years ago. The rising cost of food, housing, education, healthcare, and transport has weakened the middle class at an alarming rate.
This situation can be described as “working poverty.” A person may be employed, yet unable to maintain a dignified standard of living from that income. This is a serious threat to social stability, because in any country, a strong middle class is one of the main foundations of social balance and national resilience.
The Collapse of Youth Hope and the Outflow of Human Capital
This economic pressure also damages the hopes of the younger generation. When young people begin to lose faith in the idea that education, effort, and talent can help them build a future within their own country, they naturally begin to think of leaving the country instead of helping to rebuild it.
According to the Sri Lanka Bureau of Foreign Employment, 310,948 people left for foreign employment in 2022. By December 13, 2024, the number had again risen to 300,162. In the first six months of 2025 alone, 144,379 people had left for foreign employment.
In the short term, this may increase foreign exchange earnings through remittances. However, in the long term, it creates a serious challenge for the country. When skilled doctors, engineers, IT professionals, technicians, professionals, and graduates leave in large numbers, Sri Lanka’s human capital, innovation capacity, and productive strength are weakened.
External Debt and the Fiscal Crisis
The depreciation of the rupee also has a serious impact on public finance. A large share of Sri Lanka’s external debt is denominated in US dollars. Therefore, when the rupee weakens, the amount of rupees required to repay the same dollar debt automatically increases.
For example, when the exchange rate is Rs. 200 per dollar, a debt of USD 1 billion is equal to Rs. 200 billion. But if the dollar rises to Rs. 300, the same debt becomes Rs. 300 billion. This shows how the debt burden can increase even without taking new loans, simply because the rupee has weakened.
According to Treasury debt data at the end of 2024, Sri Lanka’s total external debt was around USD 36.7 billion. IMF data also shows that Sri Lanka’s public debt stood at 125.8% of GDP in 2022. Although it declined to 105.7% in 2024, it still remains at a very high level.
In such a situation, the government is often forced to increase taxes, reduce public expenditure, and limit essential services. This again weakens living standards, increases the cost of doing business, and reduces confidence in the economy.
From Economic Crisis to Political Crisis
People often see the collapse of a currency as a symbol of government failure. When the cost of living cannot be controlled, when the tax burden rises, when job opportunities decline, and when uncertainty about the future grows, public confidence begins to collapse.
The 2022 “Aragalaya” is a powerful example of this. It was not merely a political protest. It was a moment when an economic crisis transformed into a social and political crisis. When economic pressure increases, people are often drawn towards populist politics that promise quick and simple solutions. In such an environment, short-term popular decisions can easily take priority over long-term reforms.
The Root Problem: A Weak Economic Structure
It is not enough to understand the depreciation of the rupee merely as an event in the foreign exchange market. It is a warning sign of deep structural weaknesses in Sri Lanka’s economy.
For decades, the country has depended more on consumption than production, more on imports than exports, and more on borrowing than income generation. Political decisions were often shaped by short-term popularity rather than sound economic reasoning. The result is the structural crisis Sri Lanka faces today.
What Should Policymakers Do?
This problem cannot be solved through temporary monetary controls alone. Spending foreign reserves to artificially defend the rupee is not a sustainable long-term solution. What Sri Lanka needs is to give the rupee a real economic foundation.
For that, policymakers must focus on increasing export earnings, strengthening import-substitution industries, maintaining fiscal discipline, broadening the tax base in a fair manner, and creating a stable policy environment for foreign investment.
Sri Lanka should not continue to depend only on tea, garments, tourism, foreign employment, and traditional service exports. The country must build new sources of foreign exchange through information technology, professional services, value-added agriculture, pharmaceutical production, light manufacturing, higher education services, and innovation-driven enterprises.
At the same time, corruption must be controlled, public institutions must regain credibility, policy consistency must be protected, and the business environment must be simplified. The stability of the rupee cannot be secured through Central Bank interest rate policy alone. It requires rebuilding the productive economy, export capacity, fiscal credibility, and public confidence.
The depreciation of the rupee is not merely a decline in the value of money. It is a mirror that reflects the economic strength, political quality, and social confidence of the nation.
Protecting the rupee does not mean artificially controlling the exchange rate. It means rebuilding the country’s productive strength, institutional credibility, fiscal discipline, export capacity, and the future hopes of its people.
Sri Lanka’s real challenge lies there. The rupee becomes strong when the economy becomes strong. The economy becomes strong when the country produces. The country produces when people, businesses, and investors have confidence in the future. Rebuilding that confidence must become one of Sri Lanka’s most urgent national priorities.
by Prof Ranjith Bandara
Features
‘Lord Edgware Dies’
It has been some time since I read an Agatha Christie, the plot of which I cannot remember. So, I was delighted to find on the shelves of a friend Lord Edgware Dies, which I had a vague memory of, but no certainty about who had done it.
When I read it, I found that my memory of who was probably the killer was correct, but I could not be certain and the red herrings Christie threw in were so diverting that until almost the very end I wondered if I had been wrong.
The plot is very simple. Jane Wilkinson, who is married to Lord Edgware, tells him that she is desperate for a divorce since she is in love with a very proper Anglo-Catholic peer, Lord Melton, but Edgware refuses to divorce her. She asks Poirot to talk to him, which he does, and is surprised to find that Edgware has told Jane he is prepared to give her a divorce. This was, after he had categorically refused, through a letter, which Jane said she had not received.
That night Edgware is murdered, after Jane had been to see him, or so the butler said, and also Edgware’s secretary. But Jane had been that evening at a grand dinner many miles away, where a dozen fellow guests could swear to her presence.
There was a solution however to the mystery of two Jane Wilkinsons, namely a skilful impersonator called Carlotta Adams who, in the opening chapter had impersonated Jane Wilkinson, who had also been at the performance. But when Poirot goes to see her, he finds that she had been found dead on the morning after Edgware had been killed, of an overdose. And in her bag was a gold case, with a strange inscription, that contained the drug, along with a pair of pince-nez.
Her maid said she had written a letter to her sister in America and posted it the previous night. Poirot asks Inspector Japp to get the letter, and a transcript is received from America, and in it the name of Edgware’s nephew Ronald Marsh is mentioned; he had taken Carlotta to dinner after her performance, with which the book opens, and had then set her a challenge. Japp arrests Marsh, but Poirot is not happy and asks for the original of the letter, which the sister sends him. That shows that a page is missing, and the tear is obvious, though that raises the question as to why it had not simply been cut.
Matters are further complicated by the fact that Marsh had gone in a taxi to the Edgware house, along with Edgware’s daughter Geraldine, in the interval of an opera which had previously seemed to provide them with cast iron alibis. Geraldine had gone in to fetch her pearls so that Marsh could raise money he needed, and thus had an opportunity to kill Edgware, as did Marsh, for the driver said he had got out of the taxi while waiting and gone into the house.
Marsh explained why he had gone to the house on the night of the murder as having followed Bryan Martin, an American actor, who had been in love with Jane, whom he saw go into the house with a key. But there was no one visible when he entered, and Geraldine almost immediately came down and they left together. And Martin too has become an object of suspicion to Poirot, for he had been to see him before the murders were discovered with a story of being followed by a man with a gold tooth – a story Poirot immediately realized was false when he was asked how old the man was, and was told he was young, for young people did not have gold teeth.
A heap of French money Edgware had got for a trip to Paris was missing, but since Marsh had no need for it after his cousin’s offer of help, Poirot deduces that it must have been taken by the butler, who has disappeared. Christie has stressed that he is astonishingly handsome, unusual in a butler, and Poirot notes a resemblance to Martin, so he thinks the mysterious man going into the house must have been him.
Incidentally, later Poirot assumes that Edgware’s change of mind was because he was involved in some scandal, and I believe Christie intends us to see the cause of this in his handsome butler, though this is not specified.
Meanwhile, Poirot has asked Japp to find out the provenance of the case found in Carlotta’s handbag, and it turns out to have been made in Paris, specially commissioned, and collected by a woman with pince-nez.
But then another murder occurs—that of another guest at the grand dinner, which provided Jane with her alibi. The victim is an actor who had been bemused when Jane, at a lunch, thought the Judgment of Paris referred to the city. He told Hastings he wanted to see Poirot, but was killed before he could get to the appointment. Poirot had rushed there when told about his request, but it was too late.
Meanwhile, Poirot has tried out the pince-nez on Edgware’s secretary, but she could not see through these. It was only a chance remark heard outside the theatre that led him to try them out on Wilkinson’s maid Ellis, a spare pair that had been appropriated for the night of the murders.
Poirot then lays things out, having summoned Martin and told him that he probably suppressed Edgware’s letter, as he had been dropped by then and he did not want Jane to marry another. But after teasing Martin, Poirot says that Jane was in fact the murderer, and she got Carlotta to impersonate her at the dinner while she went to the house and killed her husband. After meeting Carlotta later and checking with her through a call that she had
not been rumbled, Jane had gone ahead with the murder – she put veronal into her drink and the case with veronal into the handbag. She forgot to take out the pince-nez she had used earlier to imitate an American. Carlotta had registered as the American in a hotel and Jane had gone to see her, and there they exchanged identities. After seen the letter, she made use of it by tearing off the page that referred to her, and the S of She, so that the person who had challenged Carlotta to impersonate her seemed to be a man.
There is a coda in which Jane, condemned to death, writes to Hastings, still full of pride at her ingenuity hoping she will be remembered.
Features
Desilt reservoirs, learn from our ancient irrigation systems
by Prof. O. A. Ileperuma
Silting of reservoirs is a major problem today affecting our hydropower production and irrigation systems. The main Mahaweli reservoirs are silted to a considerable extent reducing the water holding capacity of them. Due to poor soil management practices, floodwaters deposit large amounts of silt in these reservoirs. When the Polgolla reservoir was fully drained about two years back, one could see mountains of silt in the lower reaches of the reservoir. A rough estimate is that 50% of the total capacity of these reservoirs has been lost to siltation. This is a serious issue which affects not only power and agriculture but also flood control.
Our ancient irrigation systems ensured that desilting of reservoirs took place under royal decree where all users of the reservoirs were ordered to carry out desilting of reservoirs during the dry season. The clay thus collected was used in making bricks for the construction of great stupas which dot the landscape of our ancient kingdoms. This ensured that the reservoirs had their full capacity filled with water for the next cultivating season. Our ancient kings were clever enough not to construct reservoirs by blocking main rivers such as the Mahaweli. A classic example is the Minipe left canal where they tapped only the surface water of Mahaweli. Even the bigger tanks such as Nuwara Wewa and Parakrama Samudraya were fed with minor rivulets. There were also other ingenious features in the cascade irrigation systems built by the ancient kings, such as mud sluice canals and forest reservations between the reservoirs in the cascade system. These reservations helped trap silt and remove excess nutrients, which could otherwise contribute to increasing salinity as water flowed from one reservoir to another.
- Parakrama Samudraya
- Kalawewa
- Kotmale
A classic engineering marvel is the former Yoda Ela, which carries water from Kalawewa to Nuwara Wewa and Tissa Wewa. It is 87 km long although the straight distance between these points is only about 40 km. The gradient of this canal is about 10 cm per km or 6 inches per mile. Yodha Ela functions as a moving reservoir and feeds about 4,600 hectares of paddy lands. It is a winding canal with about 120 smaller reservoirs on its way. It was constructed during the reign of King Dhatusena around 459 AD and later expanded by King Parakramabahu by connecting more reservoirs to the network. Unfortunately, during the Mahaweli project our modern-day engineers constructed a concrete canal replacing the winding path of this Yoda Ela also called Jaya Ganga. This effectively removed the ability of the old Yoda Ela to remove silt and nutrients. The bank of this Ela has wet zone trees such as jak and areca nut growing well. They take up the nutrients from the flowing stream making the water suitable for irrigation later.
Ancient Mesopotamian civilisations depended on dams constructed along the two main rivers, Euphrates and Tigris. After continuous irrigation of their fields over several thousand years, salinity of the irrigated lands increased making them unsuitable for agriculture. People died due to famine and this clearly illustrates the danger of blocking main rivers for agriculture. There is scientific evidence that the salinity of paddy soils in the Mahaweli C area is increasing.
We saw the devastation caused by Cyclone Ditwah. The sluice gates of the Kotmale Reservoir were opened, and Kandy and Peradeniya were flooded. If the reservoir had had greater storage capacity, couldn’t the opening of the gates have been delayed? This may not be an argument that modern-day engineers would readily accept, and I am not an irrigation expert. These ideas may well be naïve. But most of us tend to think of reservoirs mainly in terms of hydropower generation and irrigation, while their role in flood control receives much less attention. The question therefore deserves serious consideration. Could restoring lost reservoir capacity through desilting help improve our ability to manage extreme rainfall and reduce flood risks?
Desilting our reservoirs should be considered a national priority.
Features
Losing out to Ethiopia
Export diversification – Missing the wood for the trees – Part III
by Gomi Senadhira
In Sri Lanka, the word “Ethiopia” is often used as disparaging slang to describe individuals or areas experiencing extreme poverty, starvation, or severe economic hardship. This linguistic habit originated in the 1980s with the Western media coverage of the devastating Ethiopian famine of 1983-85. That media coverage shocked the world but also left an outdated and offensive global stereotype that the country is permanently starving. Much has changed since then. By now, with an annual growth rate of around 9%, it is the fastest-growing economy in sub-Saharan Africa. Ethiopia has also emerged as a highly competitive exporter and is challenging not only its competitors in the region but also countries like Sri Lanka. This article is on how Sri Lanka has lost ground to Ethiopia (and a few other countries) in the GCC markets for agricultural and floricultural products.
Sri Lanka – A Pioneer in the Agriculture and Floricultural Market in the GCC
As discussed in Part II of this article, by the mid-1980s Sri Lanka had established a strong foothold in the GCC’s fruit, vegetable, and floricultural market. Geographical proximity and well-established shipping and air links gave Sri Lanka a strong comparative advantage over Southeast Asian and African nations. Thailand, Vietnam, and Kenya were not even in the market. At that time, Ethiopia was experiencing (as BBC news reports described) “a biblical famine”.
The market was not very large, but it was lucrative and growing. Trade Minister Lalith Athulathmudali as well as the Chairman of the Export Development Board, Victor Santiapillai, who visited Kuwait (and the GCC countries), recognised the market potential for these products and encouraged us to continue with our work. The minister was particularly keen to further develop links between the market for these products, exporters, and his Export Production Villages (EPVs). So, it was becoming a successful case not only for export diversification but also for transferring gains from exports directly to rural households.
From Trailblazer to Tailender
As a result, even by the beginning of this century Sri Lanka had a larger market share than most of its competitors from Asia or Africa. But since then, our competitiveness has weakened significantly. The tables below provide a comparative snapshot of Sri Lanka’s performance vis-à-vis Thailand, Vietnam, Kenya and Ethiopia in the GCC market for vegetables, fruits and floricultural products. As illustrated therein, in 2001 Sri Lanka was ahead of Thailand, Kenya and Ethiopia in this small but rapidly growing market. Since then, we have fallen behind Thailand, Kenya and many other countries in that lucrative market. If this trend continues, Sri Lanka will fall behind Ethiopia within the next few years. (See Table 1)
In the GCC market for vegetables (covered in HS chapter 07), Sri Lanka was ahead of most other competitors in 2001. As illustrated in Table 1 , Sri Lanka had failed to develop this market, while Thailand, Kenya, and even Ethiopia had very efficiently increased their market shares. The GCC is a market to which Sri Lanka can supply some vegetables, like cabbages, by sea. It appears Sri Lanka had also failed to exploit this mode of supply.
We can see a similar trend in the market for fruits. Vietnam, Kenya, and Thailand have emerged as major players, while exports from Sri Lanka have staggered on slowly. In this segment, Vietnam has emerged as a leading player during the last twenty years and the GCC imports from Viet Nam have shot up from US$44 thousand in 2001 to US$346 million by 2024. In part one of these articles, I discussed the remarkable increase of jackfruit exports from Vietnam “…just $3 million in 2015 to an impressive $236.8 million in 2023” while most of our jackfruit production rots under the trees. This explains how countries develop their markets, geographically and product-wise. (See Table 2)
Sri Lanka’s performance has been weakest in the market for floricultural products (HS Chapter 06), which groups live trees, cut flowers, and ornamental foliage. When we first entered the market in the 1980s, the market was dominated by the Netherlands, and Kenya and Ethiopia were not even in the market. At that time, we identified the Gulf states as a market where Sri Lanka could have a dominant presence due to geographical proximity. Even in 2001, Sri Lanka was ahead of Kenya, Ethiopia, and Thailand. But by now, Kenya has emerged as the dominant supplier. Ethiopia is also expanding its market share and is the third-largest exporter. (See Table 3)
Missing the Wood for the Trees
In the mid-1980s, Sri Lanka first established its foothold in the GCC market. Since then, Thailand, Vietnam, Kenya, and even Ethiopia have moved well ahead of us and have become leading players. Why did we lag behind in our export diversification efforts in general and, more particularly, in the GCC market?
The reasons are very clear. After the initial attempts in the 1980s and early 1990s, Sri Lanka has not been proactively involved in identifying, developing, and promoting new products and markets, or protecting and further developing new markets already established. The focus has simply been on traditional exports: tea, coconut, cinnamon, and garments, while other products were almost ignored. In essence, we have been and continue to focus intensely on a narrow group of products and markets, and we have lost sight of the bigger picture.
(The writer can be reached at senadhiragomi@gmail.com)
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