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Sunday, December 3, 2023
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Sri Lanka sharply depreciates currency as crisis bites

COLOMBO (AFP) – Sri Lanka announced a near-15 per cent depreciation of its currency on Monday, four days after the International Monetary Fund (IMF) called for devaluation and higher taxes to revive the almost-bankrupt economy.

The Central Bank of Sri Lanka said it will allow “greater flexibility” so that the market will determine the exchange rate, which has been pegged at LKR197 to the dollar since last April.

The bank said it hoped the rupee will not fall to more than 230 to the dollar, suggesting it will intervene to ensure that the depreciation is limited to about 15 per cent.

A severe foreign exchange shortage has led to fuel and electricity rationing across the South Asian nation of 22 million, and has crippled public transport and caused long queues for food and medicines. Essentials such as milk powder, sugar, lentils and wheat, as well as medicines, are in short supply as the country maintains a wide import ban in place since March 2020 to save foreign currency.

The pandemic pushed the South Asian island’s tourism sector – a key foreign-exchange earner – off a cliff, and the government has failed to boost its foreign reserves, sparking fears that the country may not be able to repay its USD51 billion foreign debt.

The IMF on Thursday stressed “the urgency of implementing a credible and coherent strategy to restore macroeconomic stability and debt sustainability”, recommending a return to a “market-determined and flexible exchange rate” – meaning a devaluation of the rupee.

People queue to buy kerosene for their homes in Colombo. PHOTO: AFP

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