Sri Lanka currency falls sharply as economic crisis deepens

The Sri Lankan rupee fell sharply against the dollar Thursday, after the country’s central bank ordered a 15 per cent depreciation in a bid to stave off a looming economic collapse sparked by a shortage of foreign currency.

The country’s worst economic crisis since independence has led to fuel and electricity rationing across the South Asian nation of 22 million, crippling public transport and causing long queues for food and medicine.

The coronavirus pandemic battered the island’s tourism sector -- a key foreign currency earner -- sparking fears the country may not be able to repay its $51 billion foreign debt. 

Traders said the rupee Thursday sank 11.53 per cent against the US dollar, the island’s main foreign trading currency, as authorities struggled to raise cash to finance desperately-needed oil imports.

The state-run Ceylon Petroleum Corporation (CPC) has asked the government to urgently raise the retail price of oil in a bid to save itself from bankruptcy. This week’s depreciation added another 198 billion rupees ($760 million) to service the firm’s foreign debt of $3.3 billion, official figures showed. The Central Bank of Sri Lanka on Monday night announced it would allow “greater flexibility” in the exchange rate, which had been pegged at 197 rupees to the dollar since last April.

But it then backtracked, telling commercial banks that it would not intervene to shore up the rupee.

The remarks led to a sharp depreciation when markets opened on Thursday, traders said, with exporters expecting a further fall in the currency’s value.