Abstract:
Currency devaluation has become a significant economic challenge in Sri Lanka,
which has implications for Small and Medium Enterprise (SME) stability and growth.
SMEs are the key employment generators, income distributors, and regional
developers. This study investigates the impact of currency devaluation on SME
performance in the Kurunegala District with a focus on four crucial determinants:
exchange rate fluctuation, inflationary pressure, import cost, and access to finance. A
quantitative research design was used by implementing a convenience sampling
technique to distribute structured questionnaires among 267 SME managers and
owners. Statistical analysis was conducted through the application of SPSS software
using descriptive statistics, Pearson correlation, and multiple regression analysis. All
four factors were found to significantly correlate with SME performance, where
exchange rate fluctuation and inflationary pressure had the most influence, followed
by access to finance and import cost. The research concludes that while currency
devaluation poses operational and financial challenges, it can also pose opportunities
for some export-oriented businesses. The results underscore the importance of
exchange rate stabilisation, improved access to low-cost finance, and supportive
policy measures to enhance SME resilience. The existing literature is augmented by
this study since it offers empirical evidence based on Sri Lanka on how currency
devaluation affects SME performance and provides practical implications to
policymakers and financial institutions.
