The Hon. (Dr.) Anil Jayantha

¶ 01 Hon. Speaker, the Government’s actions in response to rupee depreciation are based on data—what happened, why the exchange rate moved. First, this situation did not arise from domestic macro policy or fiscal conditions; it is due to external geopolitical factors, affecting many fuel-importing countries in our region—India, Indonesia, Thailand, etc., all facing currency weakness.

¶ 02 Further, rising US dollar yields have strengthened the dollar, attracting investments and increasing its value. Together these factors drove the present movement.

¶ 03 1. We are restoring stability; however, the Middle East escalation from 28 February 2026 has impacted us. Brent crude rose from US$ 74.24 on 2 March 2026 to US$ 116.73 by 18 May—an increase of about 57%. Fuel prices accordingly rose. Anticipating fuel scarcity, domestic consumption initially doubled in the first two weeks and has since normalized. Fuel import costs rose rapidly from US$ 360.7 million (March 2025) to about US$ 630 million (March 2026), up 75%.

¶ 04 Due to these effects and domestic energy price adjustments reflecting costs, headline inflation rose from 2.2% (March 2024) to 5.4% (April 2026), with non-food inflation moving from 2.9% (March) to 6.8% (April). Imports in a recent month exceeded US$ 2 billion, partly due to precautionary stocking as importers anticipated a higher dollar. Exports show growth year-on-year but eased somewhat; tourism growth also moderated, while worker remittances continued to rise—about US$ 3 billion in the first four months—helping the current account.

¶ 05 Monetary policy remains within a flexible inflation-targeting framework and inflation is within the target band.

¶ 06 For mitigation, in addition to existing reliefs, we announced an extra Rs. 100 billion package: - Rs. 57 billion for fuel support. - “Aswesuma” enhanced this year for the poorest, poor and vulnerable—about 1.7 million households; Rs. 8.5 billion allocated. - Electricity: although tariffs were adjusted up by 18%, about 95% of consumers use under 180 units; targeted support of Rs. 15.3 billion is provided for those under 180 units. - Agriculture: fertilizer support; urea at a stable price for Yala; Rs. 6.35 billion for small tea growers. - Fisheries: Rs. 4,121 million for single-day and multi-day boats (Rs. 3,281 mn + Rs. 840 mn). Of the Rs. 100 billion, Rs. 92 billion is already allocated to specific programmes; the balance Rs. 8 billion will support tourism and other targeted sectors.

¶ 07 On exchange rate dynamics: this is a short-term, externally driven movement amplified by speculation. We are taking sequenced, data-driven policy actions without undermining growth. The Central Bank is acting to maintain financial stability and has released a measured amount from reserves to the market; we avoid panic measures that could be counterproductive. Given domestic interest rates are around 10%—a spread of roughly 5 percentage points over dollar rates—a gradual rupee depreciation of 5–6% per year is consistent; the current move over a shorter period is exceptional and we expect normalization.

¶ 08 FDIs: The BOI attracted US$ 1,062 million in 2025; plans are to reach US$ 2 billion in 2026. For Colombo Port City, we shifted to a rules-based incentive regime. Seven Primary Businesses of Strategic Importance have been authorized. Commitments include around US$ 100 million for residential, US$ 142 million for mixed-use, and US$ 130–150 million in other sectors.

¶ 09 Regarding the IMF programme, due to stronger-than-expected performance across criteria, the fifth and sixth reviews—about US$ 700 million—are expected to be considered by the IMF Executive Board on 27 May. The IMF Resident Representative has acknowledged significant progress in restoring macroeconomic stability, rebuilding reserves and strengthening confidence.