Sri Lanka to temporarily ban all ‘open account’ transactions

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Sri Lanka has decided to further tighten its non-essential imports from this week, a top Ministry of Finance (MoF) official told Finance Today.

In order to curb the foreign exchange ‘grey market’ it also decided to completely ban all ‘open account’ transactions temporarily from this week, he said.

Accordingly, the Central Bank of Sri Lanka (CBSL) has sent three lists of more than 2,500 non-essential items of which imports should be restricted to the MoF.

“Therefore, we will soon issue relevant gazette notifications,” he said.

It is also stated that through these measures, it is expected to reduce the nation’s monthly import bill of 1.25 billion US dollars to 1 billion US dollars.

The MoF official also stated that saving foreign exchange from these proposed measures is expected to be allocated for essential imports such as fuel and pharmaceutical items etc. 

It is also said that with the implementation of the new arrangements, it will be possible to mitigate the foreign exchange constraints in the market.

“At present, there is a significant growth in the foreign exchange earnings of the banking sector. Especially foreign Banks are performing a key role in providing foreign exchange to their customers”, said a CBSL spokesman.

He also stated that the Government is now able to provide fuel without any major shortages based on the improved conditions. 

It is also said that due to transportation difficulties caused by the lack of fuel in the recent past, there was a shortage of essential food items in areas outside Colombo in the recent days.

Due to the prevailing scenario, some  Pettah wholesale traders sell essential imported material keeping higher profit margins. 

The CBSL is confident once the fuel shortage is fully sorted, it will be possible to supply all essential commodities without any shortages throughout the country.

The CBSL is also confident that high prices for essential goods will reduce. 

Currently, the country receives about 1 to 1.2 billion US dollars monthly via export earnings and around 275-300 million US dollars monthly via foreign remittances. The CBSL is also utilising deferred Asian Clearing Union (ACU) payments (around 300 million US dollars for every quarter) for forex financing purposes. Meanwhile, Tourism industry earned 85.1 million US dollars during the month of July, up significantly from the 6.3 million US dollars recorded for June. The cumulative earnings for the first seven months stood at 824.9 million US dollars. The country received 228 million US dollars in investment (FDI)  in the first quarter of the year.

 Those inflows have now become Sri Lanka’s main foreign exchange earning channels.   

 By Ishara Gamage

Date of Announcement of the Monetary Policy Review: No. 06 of 2022

The Monetary Policy Review: No. 06 of 2022 will be announced on Thursday, 18 August 2022 at 7.30 a.m. (CBSL)

Sri Lanka struggles to tap ‘Bridge financing’

 By Ishara Gamage

Sri Lanka will face severe constraints to reach the much-needed further ‘Bridge financing’ agreement with China, India and Japan in the future, top diplomatic sources told Finance Today.

 According to their observations, until a final agreement with the International Monetary Fund (IMF) is signed, it is now essential to conduct high-level diplomatic visits to the respective friendly nations  to secure the necessary ‘Bridge financing’ at this crucial juncture.

  However, Japan has already stopped all support /aid programmes for Sri Lanka, until the Island reaches the staff level agreement with the IMF and in addition various diplomatic issues have also arisen with India and China at present. 

It is also stated that, Sri Lanka’s High Commissioner to India, Milinda Moragoda, who has been in the forefront of getting Indian assistance for Sri Lanka, has considered vacating his post soon. 

Thus, although Sri Lanka expects a swap facility of 1 billion US dollars from the Reserve Bank of India (RBI), it will be difficult to access that facility with the prevailing conditions, they said. 

It is also said that India’s objection raised regarding the Chinese vessel Yuan Wang 5 will have a strong impact on this.

Sri Lanka also had arrangements to obtain a loan of 500 million US dollars through the Indian Exim Bank for the second time for petroleum imports. However, a government spokesperson told Finance Today that there were signs of abandoning the said agreement to obtain an additional 500 million US dollars loan to import petroleum products from India.

 A discussion was scheduled on 12 June to reach a final agreement in this regard with the Indian government, but the spokesman said the talks were later indefinitely postponed.

The main reason for this was a controversial statement made by former  Chairman of the Ceylon Electricity Board (CEB), M.M.C. Ferdinando recently that there was pressure from the Indian Prime Minister to hand over the proposed Mannar and Pooneryn Wind and Solar Projects in Sri Lanka to Indian Adani Green Energy Limited. 

Since January this year, India has provided loan assistance of 3.8 Billion US dollars to Sri Lanka.

1 COMMENT

  1. There is also the issue of certain government and private sector imports are been paid for on inflated invoices with US dollars. There are also super rich personal in the government sector as a result. There was also a story that covid test kits were imported at huge costs much above market prices of manufacture, and even essential drugs.

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