The state-imposed import controls are likely to further hamper the country’s growth prospects while advisedly impacting the businesses that rely on imported raw materials, including exporters, Colombo-based policy think tank Advocata Institute said.
According to the Extraordinary Gazette No 2182/10 issued in June this year, the import controls imposed by the earlier gazette No 2176/19 of May 22, 2020, have been extended for another six months, commencing from July 2, 2020.
As reported by the Central Bank, imported consumer goods only amount to 19.8 percent of the country’s overall imports, while 57 percent of imports are intermediate goods for production.
“Significant increases in the cost of production would make Sri Lankan products uncompetitive internationally and domestically expensive for local consumers. The adverse effects of import restrictions will spill over onto the export sector, as a tax on restrictions of imports is a tax on exports,” Advocata pointed out.
It noted that the local manufacturers are already starting to experience the adverse effects of the import controls, in particular, the confectionary industry, which is facing a 340 percent special commodity levy on block fat and margarine.
The confectionary industry is reported to have already been impacted by the increased taxes on palm oil and sugar and is expected to experience an additional cost of Rs.500 million to Rs.600 million per month, with the import tax increases.
The industry directly and indirectly employs over 600,000 people while exporting to over 55 counties, bringing in US $ 100 million in export revenue.
The import controls mainly have been imposed to protect the currency. The import controls cover a wide range of products, including vehicles, refrigerators, luxury goods, certain raw materials and fruits and vegetables.
While acknowledging the need for import control on a temporary basis, considering the nature of the emergency, the think tank highlighted that prolonged import controls on consumer goods would be harmful and inflationary for the local consumer.
It noted that the country is currently experiencing somewhat a price stability with mid-single-digit inflation, only as a result of the existing stocks.
“When these stocks run out, the prices of domestic goods will increase, leading to a reduction in welfare. This is especially impactful on lower-income groups, who rely on competition and cheap substitutes for essential products in order to sustain themselves,” it pointed out.
Additionally, the Advocata Institute also opined that the currency situation is also likely to continue worsening, due to the emphasis placed on consumer good suspension, instead of intermediate goods, which have more demand.