It is wrong to fool the public about exchange rate issues, as the reasons are many, and only one is economic mismanagement or Balance of Payments Deficits

It is surprising this took so long to happen, it should really have happened a year ago, so the Govt could have reacted better and grown reserves for debt repayment and cushioning further falls. If it had devalued a year ago by 10% by now exports would have grown and the BOP would be in better shape.

There are many matters on which one can criticize this administration, but the recent drop in the exchange rate is the LEAST of their economic mismanagement consequences. SO the critics of the Government who pounce on this, which is easy to fool the 95% of the public who have no clue how all the economic factors are related, are actually doing a grave disservice and exposing their nakedness. (Joint Opposition note your treachery here as you are part of the problem, not the solution)

A short essay cannot explain all the inter-dependencies here, but trust me when I say that artificially propping up the Rupee, using borrowed money, or reserves is a futile exercise, as eventually reality bites, and money is wasted. MR has your economic wizard sitting behind you not explained, like he did before?

This is exactly what the opposition did when they were in Government and Nivaard Cabral who is very critical saying each rupee’s fall is going to add so many billions to the debt is just a half truth of which he was as guilty as this govt.  He also spent a lot of reserves, (the people’s money) recklessly in defending the rupee which fell anyway during his watch.

So why is the exchange rate falling? 

Firstly, if we have real interest rates that are higher than the US, if the exchange rate is not going to fall then it is better for an investor in the US to invest in SL and then in a year take his money back as he will have a higher rate of return. To an extent that was the case in the past, when the US as part of QE kept the interest rates artificially low to boost the economy and investment. 

Now it is overheating, and so the interest rates are gradually rising. If we raise the interest rates to keep up, then our business costs rise and the economy that is growing slowly anyway for lack of investment will grow even less. So the Government would rather NOT increase interest rates, it will sap the already sapped Business Confidence which is vital.

NOTE: The Govt. can use the reserves to defend the rupee and lose their reserves with nothing to show in the end, so the rupee will not fall in the short term, or the Govt. could raise interest rates and again the rupee will not fall as much. Both are counter-productive, though listening to Mahinda Rajapakse it is one of these he would do, and ruin the economy further as he has no clue about what is happening. If the budget is also in surplus that will reduce borrowing!

So added to this normal and expected rise in US interest rates, there is the Trump tariffs that have alarmed the world economy. This is an added issue from which we have NO control to resolve and hope it will resolve itself sooner rather than later.

Then there is the Balance of Payments. With remittances NOT growing and exports still stuck, our Balance of Payments are worsening because we are importing a lot more than we export. Now that oil prices have also risen 50%, that too is affecting the Balance of Payments a lot. 

We have not cut down on our travelling and oil usage to make a dent in this despite the rising prices! In fact this Govt. should never have cut the oil price when they took power in the first place and built up reserves for such rainy days.

If we kept the fuel price high we would have fewer vehicles on the road and not paid so much to buy foreign exchange to import vehicles, also. If we were able to at least have a surplus taking into account the remittances, we could have alleviated this depreciation somewhat, but it is not the Govt. to blame for that, it is the people who love to buy imported goods.

So buy fewer cars, don’t give duty free permits, stop sugar consumption by half, eat local green gram and not foreign dhal, allow private medical schools in Sri Lanka to attract foreign students so our kids don’t go to Foreign Universities for Medicine. These are what our citizens should have done. So we can directly BLAME THE GMOA FOR THE EXCHANGE RATE DROP! How’s that for a laugh?

As the consumers are NOT willing to make lifestyle changes, the Govt. has NO option but to allow the exchange rate to find its own level. It could drop to Rs200 to US$1, and it is better it is sooner rather than later, so we can force people to adjust their habits sooner. We have to move from private transport to public transport, we have to encourage more Solar and I have been going on about it for three years, and if we had then the oil we import to run our thermal power plants will be less now.

If we get down to that level, it will immediately help the export industries, and make them more competitive, we can hopefully grow our exports. If our workers go for skilled jobs overseas, as their pay is more attractive, we may have higher remittances as long as skilled workers leave and remit.

The area where it is essential that some patriotism prevails, is for our big companies to keep their money in Sri Lanka, whether in dollar accounts here or change into rupees. They don’t have to convert their dollars if they don’t wish to but the banks will then pay them lower interest on their deposits, as compared to rupees. So please bring your money back to the Country and don’t hide it.

The other area obviously is the need to repay foreign debt. So we have to build reserves for the US$4B debt repayment next year, and so cannot waste our reserves in defending the rupee. That is not mentioned by the Opposition cretins, who took the debt in the first place which this govt. has to repay!

Yes Mahinda Rajapakse regime got us into debt for projects that do not give a return on investment. No one disputes that. Now we have to pay the interest and principal on those investments and we don’t have a return from which to pay that, so we are in deep shit. So for the opposition to blame the Govt is a bit rich!

Yes we have to blame the Yahapalanaya Govt. for increasing the debt, because they decided to pay the Public Servants more. That promise was foolish as we cannot afford to pay them for doing nothing, when the whole economy is short of staff, because all the unproductive workers are in the Public Service due to political appointments. If you are a public servant who was put there by your MPs list, then you are a traitor as you are NOT earning your keep, you are costing the taxpayer money he cannot afford.

I believe a collective effort on the part of the people and business can stop the rot, and if we are able to build confidence, FDI and funds in by foreigners as they feel the long term prospects are attractive, we can reverse the decline.

My honest plan is to let it drop to Rs200, force austerity and then within a year to bring it up to Rs185 by good economic management and foreign inflows, that give good returns on their investment, relative to the alternatives.

So to re-cap we must reduce our volume of imported fuel immediately by 20% by lower usage and encourage electric substitution and public transport. If we can reduce the traffic congestion by 20% at the same time, we are home and dry. We have to get the CEB to be more efficient and reduce thermal fuel consumption and private power from thermal fuel. If we have a moratorium on import of all cars thanks to all car sales and SMMT, we can reduce the import bill by US$1B.

Gold smuggling another treasonable act was another drain on foreign resources and for one year all our people stop travelling overseas for patriotic purposes, will also greatly help.

ITS ALL CALLED CONFIDENCE IN THE ECONOMY not worsening and if we can attract more money not more tourists, by giving them a good service and not cheat them out of their money, and stop unscrupulous jeep operators overcharging, that treasonable act can also help our economy.

Let us all stop buying imported stuff, like apples and oranges, dhal, sugar, and powdered milk for a year, we will be back in business, hail and hearty, and try to use public transport whenever you can and force the private bus operators TO REDUCE fares not increase them, as they will have more customers so not lose out, then we are in business! Its ALL A BUSINESS PROPOSITOIN STUPID!