By: Ovindi Vishmika
May 18, Colombo (LNW): Sri Lanka is once again facing growing economic anxiety as the Sri Lankan rupee continues to weaken against the United States dollar, reviving memories of the country’s devastating 2022 economic crisis.
After a period of relative exchange rate stability following the collapse of the economy, the US dollar has now climbed beyond Rs. 330 in several banks, recording the highest rates seen since late 2023.
According to the Central Bank of Sri Lanka (CBSL), the rupee has depreciated by around 3.6% against the dollar during the first months of 2026.
Although Government officials insist the current situation remains manageable, economists warn that continued depreciation could increase inflation, fuel prices, electricity tariffs, transport costs, and the overall cost of living.
For many Sri Lankans, the weakening rupee is more than an economic indicator. It is a painful reminder of the fuel queues, medicine shortages, soaring prices, and social unrest that paralysed the country just four years ago.
Why is the dollar increasing again?
Economists say the current depreciation is being driven by several domestic and global factors at the same time.
One of the main reasons is the rising demand for US dollars within Sri Lanka’s economy.
The country imports a large share of its essentials, including fuel, gas, medicines, industrial raw materials, machinery, food items, and vehicles. As imports increase, the demand for dollars also rises.
Recent increases in global crude oil prices have significantly increased Sri Lanka’s fuel import bill. At the same time, vehicle imports have surged after restrictions were relaxed, placing additional pressure on foreign exchange reserves.
Economic analyst Dhananath Fernando stated that the Central Bank’s efforts to rebuild foreign reserves may also be contributing to the rupee’s weakness.
According to Fernando, the Central Bank has been purchasing dollars from the domestic market to strengthen reserves under the IMF-backed recovery programme. However, when the CBSL buys dollars, more rupees are injected into the financial system, increasing liquidity and demand for foreign currency.
Global economic conditions have also intensified the pressure. The strengthening of the US dollar internationally, along with geopolitical tensions in the Middle East, has weakened several Asian currencies, including those of India, Thailand, and the Philippines.
Sri Lanka has simultaneously experienced lower foreign exchange inflows in recent months. Tourism earnings, which were expected to support the recovery process, have slowed due to regional instability and global uncertainty. Export sectors such as garments and tea are also facing rising production costs because many raw materials are imported.
From stability to uncertainty
The current situation contrasts sharply with the stability Sri Lanka experienced after the economic collapse.
Following the floating of the rupee in March 2022, the dollar rate surged dramatically, eventually exceeding Rs. 370 during the peak of the crisis. Severe shortages of fuel, food, and medicine pushed the country into political and social turmoil.
However, several policy measures later helped stabilize the economy.
Sri Lanka secured support from the International Monetary Fund (IMF), introduced import controls, increased interest rates, improved reserve management, and reduced excessive money printing.
Tourism and remittances also gradually recovered.
By late 2024, the dollar rate had fallen below Rs. 300 at certain points, creating optimism that the economy was slowly recovering.
Yet economists warn that the recent depreciation shows the country’s recovery remains fragile and vulnerable to external shocks.
Impact on fuel, electricity, and daily life
The impact of a weaker rupee is already being felt across the economy. Fuel prices are usually the first major concern because petroleum imports are paid for in dollars. Once fuel prices rise, transport and production costs increase, leading to inflation throughout the economy.
Electricity tariffs and water bills also come under pressure because Sri Lanka still relies heavily on thermal power linked to imported fuel.
Food prices are also affected. Even locally produced goods become more expensive because agriculture and manufacturing depend on imported fuel, fertiliser, chemicals, machinery, and packaging materials.
For ordinary households, this means declining purchasing power. Salaries remain largely unchanged while the prices of essentials continue to rise.
Pressure on businesses and debt
Small and medium-sized enterprises (SMEs), which form the backbone of Sri Lanka’s economy, are among the hardest hit. Businesses dependent on imported raw materials face rising costs while consumer purchasing power continues to decline.
Exporters may benefit temporarily from earning more rupees per dollar, but higher production costs reduce that advantage significantly.
The weakening rupee also increases the burden of Sri Lanka’s foreign debt. Although the debt itself is denominated in dollars, every rupee depreciation increases the amount the Government must repay in local currency terms.
Economists warn that prolonged depreciation could complicate future debt servicing and economic recovery efforts.
Fear of repeating the past
Perhaps the biggest danger is psychological. The memories of 2022 remain fresh in the minds of many Sri Lankans. As the rupee weakens, fears of another inflationary crisis are beginning to grow.
Businesses may increase prices in anticipation of future inflation, while consumers rush to purchase goods before prices rise further. Such reactions themselves can intensify economic instability.
While economists stress that Sri Lanka is not currently facing conditions as severe as those seen in 2022, they warn that the country’s long-term stability will depend on stronger exports, lower import dependence, improved productivity, and careful economic management.
For now, the weakening rupee stands as a reminder that Sri Lanka’s economic recovery remains incomplete and highly vulnerable to both domestic and global pressures.
