SRI LANKAN RUPEE DEPRECIATION – WHY WORRY TOO MUCH? SHOULD WE PREPARE TO FACE Rs 200 per USD?
Posted on April 26th, 2018
By M D P DISSANAYAKE
To win the election, wages have been increased by Rs10,000. How these costs be absorbed, without increasing productivity. The Central Bank robbery is directly impacting on Rupee depreciation. Direct Foreign Investments are rapidly declining, export revenue deteriorating, to pay foreign debts Sri Lanka is faced to buy USD using its Rupee Reserves. The Sri Lankan rupee is under constant pressure, meddling inside the country with our own currency alone, we cannot survive. Sri Lanka in effect has failed to optimise the benefits of open market economy.
Rapid depreciation of rupee is a concern, but it should also be seen as an opportunity to increase export revenue. The capacity utilization of plant and machinery at many factories are below 55%, a deliberate attempt to control volume, to keep higher selling price, as support for export marketing is not aggressively pursued. Instead, innovative export marketing drive must be initiated to increase plant and machinery utilization, increasing labour force, reducing unit cost of production and exporting the additional volume. Sri Lankan products are still not available in international markets, except Dilmah Tea, Biscuits. Most of our products are confined to Spice Centre, which are not visited by other nationalities. Asian aisles in super markets are full of Indian, Singapore, Malaysian, Bangladesh, Vietnam products.
In Indonesia, some years ago, Indonesian Rupiah depreciated from Rp7,000 to Rp 20,000 per unit of USD. This was an overnight depreciation. The chinese businessmen opened up their factories previously shut down or operating below capacity. Hired more labour and structured the company business from local market orientation to international market. When export revenues are collected in USD, the companies need not buy USD from Central Bank, instead use their own multi-currency to import machinery, materials, spare parts to replace or expand the business. The local Rupee will therefore be used to pay wages, utilities and other local costs, which can be financed from the Local Sales. To be successful, especially at times of currency depreciation, each Company must derive at least 60% sales revenue from export market leaving 40% for local market. The re-arrangement of core-business require talents of Leadership.
Our Commercial Attache in Sri Lankan Embassaies/High Commission Offices, unfortunately not exploring these avenues, in their respective stations. Sri Lanka is very under-rated in terms of marketing their goods and services. Even Bangladesh is now well ahead of us.
April 26th, 2018 at 4:59 pm
Indonesian case is a little different. They have vast natural resources and big companies are ever ready to jump in, which has lead to significant environmental problems through out the region, including to singapore one of the exploiters. But what is same in both countries is the none contribution to the economy from the educated professionals (free of charge in SL). This is especially bad (and unfortunate) for small countries like Sri Lanka. All small countries which have developed did so from the brains of their own technical and management professionals. But despite more than 80 years of technical and management education SL still depend on the productivity of blue collar workers like housemaids and agricultural workers. and despite their none contribution they want to live like their collegues in developed coutries and have succeeded in getting big rupee salaries. And poor people like housemaids have to earn dollars to keep this life styles. There is so much that these poor people can do. Already SL is spending 50% of dollar income on importing fuel and oildprices are going up fast. Country is clogged with cars where even the small nut need dollars to maintain. MR after defeating terrorism had a good opportunity develop the economy from inside out using some elements of Sirima administration strategies (minus corruption and mismanagement). Chinense companies could have helped him in developing a local knowledge based economy. But he went even a step beyond JR’s open economy (which unfortunately no big country was interested in due to small market) and started importing all luxuries to cator to none contributing professionals and the middle urban class plunging the country to even bigger foreign debt.