As the Sri Lankan Rupee continues its rapid depreciation against the US Dollar and other foreign currencies, public anxiety is also steadily rising in a corresponding manner. For many Sri Lankans, the weakening currency is not merely an economic statistic flashing across Central Bank screens or currency exchange boards; it is an emotional trigger that revives painful memories of 2022 and the final months of the Gotabaya Rajapaksa administration. That was when a collapsing foreign exchange regime eventually spiralled into fuel queues, medicine shortages, power cuts, inflation shocks, business closures, and finally social unrest on a scale the country had never witnessed before.
The comparisons are becoming increasingly frequent because the warning signs are beginning to look familiar. Although Sri Lanka is not yet facing the same scale of immediate collapse, the underlying vulnerabilities remain deeply embedded within the economy. What is especially alarming is that the current depreciation is taking place when households, businesses, and the State itself are still financially exhausted from the last crisis. The public therefore has very little remaining financial cushion to absorb another sustained economic shock.
The immediate consequences of a weakening rupee are felt most painfully through the rising cost of living. Sri Lanka imports a substantial share of what it consumes like fuel, LP gas, pharmaceuticals, milk powder, sugar, wheat, vehicles, machinery, chemicals, industrial inputs, and critical agricultural materials. When the rupee weakens against the dollar and other currencies, the cost of importing these essentials automatically increases.
Fuel is usually the first major transmitter of pain. Petroleum purchases are denominated in dollars, meaning every rupee depreciation directly increases Sri Lanka’s fuel import bill. Once fuel prices rise, the shock spreads rapidly throughout the entire economy. Electricity generation also comes under pressure because Sri Lanka continues to depend heavily on thermal power linked to imported fuel. Even when tariff revisions are politically delayed, the losses accumulate elsewhere within the system before eventually returning as higher taxes, tariffs, or public debt.
Food inflation follows closely behind. Even domestically produced food becomes vulnerable because modern agriculture depends heavily on imported fuel, fertiliser, machinery parts, animal feed, pesticides, and packaging materials. Local staples like bread, rice, vegetables, eggs, fish, and meat all become exposed to rising production costs. For ordinary families, it is slow economic suffocation.
Healthcare costs represent another deeply worrying dimension. Sri Lanka imports a significant proportion of its pharmaceuticals and medical equipment. A weaker rupee means that hospitals, pharmacies, and healthcare providers must spend more for essential supplies. The result is usually a toxic combination of shortages, reduced availability, and higher prices – all of which are already visible.
The middle class, regarded as the stabilising backbone of Sri Lankan society, is also being steadily hollowed out. While nominal salaries remain unchanged, real purchasing power has deteriorated because the same income buys less of everything. Families connected to overseas education face immediate distress as tuition fees, exam payments, software subscriptions, and living expenses abroad have risen sharply in rupee terms.
Small and medium-sized enterprises are similarly exposed. Businesses dependent on imported raw materials or machinery face escalating operating costs. This is especially dangerous because micro, small, and medium-sized enterprises account for nearly 75% of registered businesses in Sri Lanka, employ around 45% of the workforce, and contribute more than half of GDP.
Yet perhaps the most dangerous impact of currency depreciation is psychological rather than statistical. Economic crises are ultimately crises of confidence. Once the public begins believing another inflationary spiral is approaching, defensive behaviour tends to accelerate instability. Notable consequences are businesses pricing ahead of anticipated inflation, consumers rushing to purchase durable goods before prices increase, importers hoarding dollars, and investors delaying decisions. The daily wage earners, pensioners, lower-middle-income households, and fixed salary workers absorb the full force of inflation because most of their income is spent on essentials.
There are, however, a few that benefit from a weaker rupee. Exporters, tourism operators, and families receiving foreign remittances may temporarily benefit because every dollar earned converts into more rupees. However, these gains are outweighed by the broader inflationary pain.
The current depreciation itself is being driven by multiple converging pressures rather than a single isolated factor. Rising global crude oil prices have sharply increased Sri Lanka’s demand for dollars to finance fuel imports. The trade deficit has widened again as imports rise faster than exports. Vehicle imports surged following the relaxation of restrictions while fuel costs simultaneously escalated.
During the first two months of 2026 alone, the trade deficit reportedly widened to approximately $ 1.4 billion compared to $ 1.1 billion during the same period last year. Tourism earnings, which were expected to provide critical foreign exchange stabilisation, have also weakened amid regional instability, fears linked to the Middle East conflict, and a travel deterrent issued by India, Sri Lanka’s biggest source market.
Meanwhile, the Central Bank itself is caught in a difficult balancing act. Under IMF programme obligations and looming future debt repayments, the CBSL remains under pressure to rebuild reserves aggressively. To accumulate reserves, the Central Bank purchases dollars from the domestic market. But when it does so, it injects rupees into the system, which can itself weaken the exchange rate further. Some analysts argue that reserve accumulation efforts may have indirectly contributed to the rupee’s downward trajectory.
Foreign investor confidence also remains fragile, despite relative stabilisation compared to the catastrophic conditions of 2022. Foreign inflows into Government securities and the Colombo Stock Exchange remain weak with Sri Lanka recording net foreign outflows from both markets in recent weeks. Meanwhile the country continues to suffer from high debt obligations, weak export diversification, limited productivity growth, chronic import dependence, and insufficient long-term reserve buffers. Under such fragile conditions, even moderate external shocks tend to have a disproportional impact.
The latest Central Bank exchange rates underline the gravity of the situation. The selling rate of the US Dollar climbed to Rs. 333 on Friday, marking the highest level since December 2023. Sterling Pound and Euro rates have also risen sharply against the rupee. The danger is not merely symbolic because every rupee depreciation increases the local currency burden of Sri Lanka’s already massive external debt obligations.
This is why serious questions must now be asked about the wisdom of certain Government policy choices. At a time when the rupee remains under pressure and foreign reserves are still fragile, allowing scarce foreign exchange to be drained through largely unproductive vehicle imports appears economically reckless. Luxury and non-essential vehicle imports may generate short-term tax revenue and profits for politically connected commercial interests, but they contribute little towards economic growth. Every dollar spent importing luxury vehicles is a dollar unavailable for critical imports. Economic policy cannot be dictated by narrow business lobbies while the wider public bears the consequences.
At the same time, the cash-strapped Government appears increasingly desperate to expand tax collection. Yet the emerging approach risks further alienating struggling citizens already under immense economic strain. Opposition Leader Sajith Premadasa recently criticised the proposed 185A clause, warning that ordinary citizens and small business owners could be criminalised over administrative tax-related mistakes. His criticism is an expression of public frustration. Most citizens are not necessarily opposed to taxation itself. What angers them is the perception that the burden of adjustment is falling disproportionately on ordinary people while corruption, financial fraud, waste, and political privilege remain insufficiently addressed.
President Anura Kumara Dissanayake himself has acknowledged the growing pressure on the economy caused by surging fuel costs and subsidy burdens. He warned that the Treasury cannot indefinitely subsidise both the CPC and the CEB while global energy prices continue rising. He also stressed the urgent need to reduce fuel consumption to limit dollar outflows.
Yet critics increasingly argue that the Government has displayed inadequate preparation for the external shocks now unfolding. Questions are being raised over delays in securing long-term crude oil contracts, failures in coal procurement planning, expensive diesel purchases, and inconsistent approaches towards renewable energy management, including rooftop solar expansion.
The greatest danger facing Sri Lanka today is therefore not merely the depreciation of the rupee itself. It is the possibility that policymakers once again underestimate the social consequences of prolonged economic pressure on an already exhausted population. Economic crises rarely erupt overnight. They build gradually through accumulated frustration, declining living standards, institutional mistrust, and the growing perception that ordinary citizens are paying for elite incompetence.
Sri Lanka has already witnessed where that road can lead. That is why the weakening rupee is generating such deep public anxiety. Citizens understand instinctively that currency crises are never simply about exchange rates and that they are more about political credibility, economic priorities, social stability, and ultimately the relationship between a state and its people. The question is whether the country’s leadership has learnt anything from the past.