The Committee on Public Finance recently (23) requested that the Ministry of Finance present a document which would explain whether the Treasury spent additional rupees on foreign debt due to the depreciation of the rupee, or whether the depreciation resulted in additional Rupee revenue from import taxes.
“You need to find the net difference here. There is a narrative circulating that the moment the rupee depreciates, the amount payable for our debt increases. That is not the case, the reason for that is when the rupee depreciates, the Treasury receives an amount in revenue that exceeds expectations,” COPF Chairperson Harsha de Silva said.
This line of questioning was initiated when it was revealed that the depreciation of the rupee against the US dollar, resulted in an additional Rs 48 billion (b) being incurred for foreign debt repayments in 2025.
“Through imports, the benefits for the Treasury increase, one reason was the depreciation of the rupee from Rs 290 to Rs 310, against the dollar,” de Silva further reasoned.
He directed the Treasury’s attention to the fiscal mechanics that may be driving the net balance. “In your presentation you have received $ 1.8 b and paid $ 2.4 b, that would mean that you have a difference of around $ 600 million (m).”
Converting that gap to roughly Rs 300 to the dollar, he noted that this translates to approximately Rs 180 b. “If we take $ 600 m from the market, say $ 300 m a time, Rs 180 b is the difference.”
However, he pointed out that when the rupee weakens – in this case the Chairperson focused on the depreciation of the rupee from Rs 290 to Rs 310 – the Treasury would collect higher rupee-denominated tax revenue on dollar-priced imports; thereby offsetting the foreign exchange gap discussed.
“When the rupee depreciates against the dollar, since these values are in dollars; when we level tax on import goods, because the rupee depreciates, you receive an amount that is higher than what you may have expected.”
“That is the net balance to this. How much more was required, aside from the Rs 180 b to cover this? That’s the net amount.”
“Give us a report on the net differences; how much in dollars you receive; how much is used; the $ 600 m required; and the benefits the Treasury saw due to the depreciation of the rupee. Also, the balance that was covered from within, so make that calculation for us,” de Silva said.