Rethinking the rupee crisis 

The call by the Government to reduce imports as an effort to counter the impact of Sri Lanka’s fast depreciating rupee was met with disdain by many members of the public. This is largely because an import contraction is seen as an unfair demand by the masses and increasing economic challenges.

While many would acknowledge there are crucial external issues that have pushed the rupee to depreciate, many also feel that the situation has been made worse by the Government failing to implement crucial reforms to stabilise the macroeconomic environment and foster growth. An appreciating dollar and rising fuel prices, cannot be changed by the Sri Lankan Government. But an import dependent economy, few exports, little investment and high debt is the result of decades of economic mismanagement by Governments that were formed by both the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP). Stakeholders have also been frustrated by years of policy inconsistency by this Government and its inability to fast track reform implementation. 

Another linked critical factor is the perception that the Government is demanding belt tightening by the public without making any effort to reduce its own expenditure. The rupee depreciation comes on top of tax increases, fuel hikes, multiple strikes, weather problems and corruption scandals that have been endured by the public. There has been little effort by the Government to show a clear path on how the economy would be managed in the future and the election cycle, likely to begin next year, has made the situation even more uncertain. Clearly the best way forward is to increase investment and diversify exports but even in this most crucial of policies there have been many loopholes. 

For example think-tank Verité Research recently released a policy note calling on the Government to simplify the process for registering exporters to make it more effective, as the present system is seen as too cumbersome and time-consuming, and open to abuse. 

Although the current registration process was introduced with the intention of identifying and supporting new exporters, its execution severely impedes the achievement of this goal, a new study has found. This is largely because some of the features of the registration process undermine its aim by making the process lengthy and inefficient, especially for Small and Medium Enterprises (SMEs) that are more in need of Government assistance to enter international markets compared to larger firms.

The process also imposes an undue burden on businesses, particularly SMEs that are registered as sole proprietors/partnerships and that are located outside the Western Province. Rules and regulations that are burdensome and lack a clear rationale serve to discourage businesses from exporting, and therefore undermine the objective the Government aims to achieve. 

Similar problems have been found in the single window platform introduced by the Government. Even though efforts have been made to improve Sri Lanka’s ease of doing business progress has been slow. Liberalisation in the backdrop of tenuous international trade policy poses fresh challenges and the overall sense of turmoil is troubling. This is worsened by additional and sometimes unjustified emphasis on the depreciation of the rupee. 

Other countries have seen their currency depreciate over the last few months but as they may not have the same economic challenges Sri Lanka has these other countries may be able to weather the storm in better condition. For the Sri Lankan Government the best option may be to attempt to build some level of public confidence and show that they understand the frustrations of the public.