The Central Bank of Sri Lanka (CBSL) in a press release yesterday reassured its commitment to ensure the availability of foreign exchange within the banking system to import essential goods, including food items, in the coming days.
Import Control Regulations
The Ministry of Finance issued Import Control Regulations on Payment Terms No.07 of 2022, dated 6 May 2022 effective 20 May 2022, by restricting the use of Open Account Payment Terms or Consignment Account Terms, subject to conditions, when importing goods to Sri Lanka. This measure complements the various other measures that are being implemented by CBSL and the Government to improve foreign exchange liquidity conditions in the domestic banking system.
Shortage of essential food items
It has been brought to the notice of the CBSL that concerns are being raised at various trading community meetings that there will be a severe shortage of essential food items in the country due to the above-mentioned restrictions on payment terms.
Further, the CBSL underscores the following with regard to the arrangements that are being worked out to ensure that the restrictions imposed on payment terms would not cause shortages of essential goods, including food items, and they would not result in any hindrance to manufacturers of export goods.
a) The CBSL is in a continuous dialogue with the banking community to facilitate import of essential goods. Following the restrictions imposed on payment terms and the introduction of the exchange rate determination mechanism, there has been significant moderation of activity in the grey market. This has resulted in foreign exchange inflows routing through to the banking system, thereby increasing foreign exchange liquidity conditions in the banking system. This momentum is expected to continue in the period ahead, thereby speeding up the correction of the exchange rate overshoot that took place since March 2022. Such improvement in the domestic foreign exchange market and subsequent increase in liquidity conditions would help channel foreign exchange to facilitate imports of essential goods.
The CBSL has commenced negotiations with the Trade Association and other parties engaged in importing essential goods. Accordingly, a preliminary assessment is being carried out, with the participation of the Ministry of Trade, the Consumer Affairs Authority, and the Customs departmentto identify the availability of stocks of essential goods at present and the monthly requirement of the same in the ensuing period. Based on such findings, an arrangement would be put in place to ensure the import of essential goods in required quantities and frequency, along with the existing arrangement agreed by the government of India to utilise the existing line of credit to import essential goods.
b) The Essential Food Commodities Importers and Traders Association assured the Central Bank during recent discussions that they would not resort to engage in grey market activity and extend the fullest cooperation in traversing through these challenging economic conditions. Accordingly, collective effort would be put in place to ensure adequacy of essential food items in the period ahead, alongside the arrangements that are being made under the Indian Line of Credit, among others.
c) The CBSL, the Sri Lanka Customs, and the Ministry of Trade, along with other agencies, are taking measures to clear the imported goods that are being held at the Customs, thereby minimising costs to traders while releasing stocks to the market as a matter of priority.
d) Measures are already underway to facilitate the exporters, when importing raw material required for their exports, and to utilise their export proceeds to make payments under open account payment/consignment account terms. Further, local suppliers, who supply for these exporters, and receive payment in foreign currency, are also allowed to make payments under open account payment/consignment account terms.
The CBSL also requests the trading community and the public to act responsibly under these challenging circumstances.