Former Deputy Governor of Central Bank and renowned economist Dr. W.A. Wijewardena said that depreciation of the rupee against the US Dollar would not adversely affect the government's external debt repayment capacity.

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Commenting on the government’s policy of depreciating the rupee, he said that “Contrary to the popular feelings, Sri Lanka government is the biggest beneficiary of currency depreciation.” He added that the government will earn more rupees by way of rupee funds generated from external borrowings and higher import values.

“While it is true that its foreign loan repayment commitments in rupee terms go up, its revenue from import duties and higher rupee values of external borrowings too go up, generating a net surplus for the government” Wijewardena said.

He also pointed out that the current depreciation of the Sri Lanka Rupee against the US Dollar is not a new development but a process that started from around 2013. The authorities kept on avoiding pressure for depreciation for political reasons, argued Dr. Wijewardena.

“The fundamentals in the macro economy were weak with a large trade deficit which could not be financed totally with services sector receipts and remittances. The result was the need for the country to build reserves out of borrowings from the commercial markets at high rates,” Wijewardena said.

“This was the legacy which the new government inherited in Jan 2015. The mistake it did was not to announce the situation to the markets and therefore, like in the time of the previous regime, the people started to have false confidence in the macro policy and the state of the country's external sector,” he further pointed out.

Wijewardena also said that the country will have to go through another massive and painful adjustment which could have been avoided had the country depreciated the rupee gradually. “Now the depreciation shock is large and before the shock was delivered, the country has lost its valuable foreign reserves as well,” he added.

No one can say how long this adjustment will take, Wijewardena also said. “It will depend on the policies which SL will adopt in the next 12 months or so,” he added.