Sri Lanka Borrows 1.5 Billion from India Amid Depreciation of its Currency

In order to import essentials like natural resources, electronics, cloth, pharmaceutical products, and more, Sri Lanka has had to look to its neighbors for financial support. Within the span of only one month, the Sri Lankan rupee has depreciated significantly against the Indian rupee and virtually all other world forms of currency. It’s dropped from 0.367 per 1 Indian rupee on March 1 to 0.256 on March 30. The depreciation of a country’s currency makes it much more expensive and difficult to import products. Given that Sri Lanka is a smaller country, many of its resources are imported to support its dense population. 

Sri Lanka has endured a financial crisis during these past few years. It relies heavily on its tourism sector, which obviously was hit hard due to the COVID-19 pandemic. In order to try and encourage foreign investment, they depreciated the value of their currency so that their foreign investors could expect a return on that investment. This strategy has proved to be harmful, and the value of the Sri Lankan rupee has continued to drop, with an all-time low occurring this past month. While this may have been helpful for their exporting industries like textiles, rice, and other agriculture, but its proved damaging for their citizens who rely on the importation of numerous essential goods and has sent food prices spiraling upwards. Sri Lanka farmers rely on imported fertilizer which has become difficult and expensive to import now. Sri Lanka now owes about $5 billion in foreign debt, with only $2.36 billion in its reserves, according to the US News and World Report. “This move could help exporters, but it is too little too late for migrant workers who are now used to higher curb rates and are unlikely to shift to bank rates,” says Umesh Moramudali, an economist at the University of Colombo.

One of the countries that Sri Lanka is currently borrowing copious amounts from is not only India but China. Sri Lanka will borrow $1 billion dollars from China in order to pay off previous loans to Chinese banks, and Sri Lankan president Gotabaya Rajapaksa is dependent on China for food-related fixes and has received 2000 tons of rice from the global superpower. This only increases China’s hold on numerous smaller countries that financially rely on them. This means more countries siding with them on world issues in international institutions like the UN and more nations who will stay quiet if China goes forward with controversial moves that take advantage of the scope of their economic power.

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