As currency plunges, Sri Lanka braces for more shortages this month 

Amid political impasse and sliding Sri Lankan rupee, traders seek urgent action by end of this week to avert a ‘economic catastrophe’  

The plunging Sri Lankan rupee, a political stalemate, and the coming holiday season, are threatening to further stall imports and impair supplies in the island nation battling one of its worst economic downturns.

On Thursday, the Sri Lankan rupee fell to almost 310 (roughly ₹79) to a U.S. dollar, dropping rapidly in a month’s time. The rupee has been sliding ever since the government free floated it in early March. The Central Bank of Sri Lanka devalued the rupee from LKR 200 to 230 against the American dollar, in a move deemed necessary to obtain support from the International Monetary Fund.

“In fact, the Sri Lankan rupee has been hitting a record low every day after that,” said Nisthar Cassim, Editor of the Colombo-based business newspaper Daily Financial Times. The rupee is “still struggling to find its level in the market”, he observed, pointing to dwindling inflows by way of worker remittances, and larger bilateral borrowings that are yet to materialise.

For over a month now, Sri Lanka is grappling with severe shortages and high inflation amid an aggravating forex crisis. Citizens and professionals are taking to the streets in large numbers every day, in a show of rare, nation-wide public outrage against the Rajapaksa administration. On Sunday, Cabinet Ministers and top officials stepped down, amid the massive wave of protests demanding that the President and the ruling clan immediately quit office for “failing” the country.

Already in the grip of an economic meltdown, Sri Lanka now faces a political conundrum, with President Gotabaya Rajapaksa refusing to resign despite mounting calls, and the Opposition rejecting his offer to form a national Cabinet under him.

It is this political impasse that is making the rupee plunge further this week, Mr. Cassim contended. As of Thursday, Sri Lanka does not have a Finance Minister, or a Treasury Secretary, following the spate of recent resignations.

“Given this political instability and market uncertainty, exporters are putting off conversion, and it’s a double whammy for importers to cope with the sliding rupee and to actually find dollars which are not easily available,” he told The Hindu. The importers’ challenge, he anticipates, would soon translate to a severe shortage of essentials from food to medicines. “This is only the beginning of the shortages and high prices, as the rupee will remain under growing pressure.”