Colombo (News1st) – Foreign Media has begun to report on the current status of the Sri Lankan rupee. One report published by Nikkei Asian Review says Sri Lanka which has loaded up on Chinese-funded infrastructure, is sinking deeper into a debt trap as its currency weakens and economic growth decelerates to its slowest pace in 16 years.
The Sri Lankan rupee has depreciated 3% against the dollar this year to 157.4628 per dollar, according to forex data of the Central Bank. The rupee is at its weakest point ever and has softened nearly 20% since the government took office in January 2015.
The Nikkei Economic review quotes Alex Holmes, an economist at Capital Economics stating that around half of Sri Lanka’s loans are denominated in foreign currency. As a result, “any further weakening of the rupee will increase the rupee value of maturing foreign exchange debt and interest payments” — driving the government’s financing needs higher. The report adds that the country is caught in a vicious cycle: Investors devalue the rupee over concern about government debt, which then increases the nation’s obligations even further.
Falling tax revenue prompts another concern as the economy grew 3.1% last year, the slowest since a contraction in 2001. In the October-December quarter, growth was also sluggish at 3.2%.