Sri Lanka import controls extended indefinitely amid money printing

News date: 01 July 2020Source:

ECONOMYNEXT – Sri Lanka has indefinitely extended sweeping import controls and license regime introduced for three months from May 22 after unprecedented money printing triggered foreign exchange shortages indefinitely.

Excess liquidity in money markets which was 88 billion rupees (representing the potential loss of about 470 million US dollars to keep the exchange rate stable when credit picks up or foreign loans are repaid) on May 22 when the regulations were gazette.

By June 26 excess liquidity had risen to 209 billion rupees which will require about 1.1 billion US dollars in reserves to mop up, while potentially also generating inflation if credit picks up.

Sri Lanka is also giving central bank re-finance (printed money) to boost credit. The money is printed despite Sri Lanka having to repay foreign loans.

Sri Lanka introduced sweeping import controls not seen since the 1970s, when the Bretton Woods system collapsed and President Nixon slapped controls on the US and Sri Lanka closed the entire economy, using provisions of an import and export control law of 1969.

The current regulations are slapped using the same law.

The controls which were originally set to expire in three months, will now be in place “from May 22, 2020 until further notice,” the new rules said.

The new rules introduced a series of regulations for exporters who need to imports.

Under the controls some items are allowed in under 3-month, some are suspended, some a allowed under a license regime.

Under the new regulations, freezing equipment, chest type freezer), tankers and bowsers, have been taken off a temporarily suspended list.

Washing machines over 10 kilograms and parts have been taken off the temporarily suspended list.

Some spare parts for televisions, video displays and knocked down forms have been allowed. Knocked down items typically bring less revenue to the government, but will benefit selected businesses.

Some computer and electronic parts including chips, and diodes, solar cells and monitors, which were previously allowed in under credit have been removed from the list.

Carbon brushes have also been removed.

Crude coconut oil, virgin coconut oil and jute sacks for packaging had been removed.

A series of vehicle parts for cars and motor cycles have also been removed from the credit list.