Balancing Import Liberalisation & Currency Stability in Sri Lanka 📈

• The Macro Outlook: Unrestricted imports of non-essential luxury goods place massive pressure on foreign exchange reserves. While the exchange rate stood at ~Rs. 178 per US$ at the end of 2019, it has depreciated by nearly 88% to around Rs. 335 per US$, severely eroding real incomes following the 2022–2023 crisis. • Socio-Economic Impact: Sri Lanka's richest 20% of households secure over half of national income, while the poorest 20% get less than 5%. Roughly 75% of households earn under Rs. 70,000/month; they do not drive luxury imports but bear the heaviest burden of currency depreciation through inflation. • Sector Alternatives: Relying solely on monetary tightening stalls growth in vital sectors like apparel & textiles and tea. Sustainable competitiveness requires moving beyond low-value-added industries by investing in domestic capacity, skills, logistics, and infrastructure rather than forcing workers to subsidise exports via falling living standards. • Policy Recommendations: Sri Lanka needs a sequenced, pragmatic trade strategy, mirroring nations like Vietnam or China. Instead of rigid IMF-prescribed austerity, a controlled annual vehicle import allocation of ~US$ 1.2 Bn (vs a risky US$ 2.6 Bn) and a temporary 50% vehicle surcharge can prevent a recurring balance-of-payments crisis.