Sri Lanka ex-President warns on depreciation, debt inflation

ECONOMYNEXT – Ex-President Mahinda Rajapaksa has warned that Sri Lanka’s foreign debt is ballooning, due to steep falls in the currency.

Government debt was 7.39 trillion when he left office, but it has grown to 12.64 trillion rupees by July 2019, he said.

The rupee had fallen from 131 to the US dollar in 2015 to 183 to the US dollar today.

“The depreciation of the currency from 2015 up to the end of 2018 alone, had increased the government’s debt burden by Rs.1,709 billion,” Rajapaksa said.

Sri Lanka has been lagging behind the rest of Asia ever since money printing central bank was set up in 1950, generating inflation, balance of payments trouble and depreciation.

Sri Lanka’s central bank was similar to ones set up from around the 1930 instigated by iso-called New Dealers in Latin America, banking analysts said almost seven decades ago.

The rupee falls because central bank tries to control the exchange rate and rates at the same time.

Under a so-called ‘flexible exchange rate’ perhaps a highly unstable soft-pegged regime money is printed to generate excess liquidity and push down the call money rate until the rupee falls.

Then convertibility undertakings are delayed on the weak side of the peg until a disorderly fall. But there is no similar disorderly appreciation before dollars are bought.

Dollar bought especially from the Treasury injecting large volumes of liquidity, which is also left unsterilized at times until the rupee falls. (Colombo/Oct01/2019)

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