28 November 2022 02:38 am
The Central Bank expressed confidence that Sri Lanka could continue to manage its imports with what it earns from exports and remittances in the interim until the International Monetary Fund (IMF) deal comes through as its activation could get delayed till next January from a December target.
The country and its people were forced to undergo innumerable hardships and misery, having to stay in days-long queues for fuel, cooking gas and other essentials with prices of everything going through the roof since the economy plunged into its worst crisis in March after the country ran out its foreign currency reserves.
However, the officials managed to take the situation largely under control from mid July when they could allocate the foreign currency receipts from exports and remittances into imports, which were brought down quite significantly due to the ultra tight monetary policy, restrictions on imports through open accounts and outright bans on certain imports before gradually relaxing such controls later.
Assuaging any concerns surrounding Sri Lanka’s ability to meet its import needs amid a potential delay in the activation of the IMF deal, Central Bank Governor, Dr. Nandalal Weerasinghe expressed confidence in managing the situation without letting it to deteriorate.
“We could manage the situation for five months since July without any significant inflows, I don’t see any reason why we cannot do that going forward,” Dr. Weerasinghe said.
Although there hasn’t been any significant bridge financing during this period, he said there were some small amounts received from the Asian Development Bank and the World Bank.
He emphasised how the tight monetary policy helped in curtailing the import bill, making the Central Bank’s job relatively easy in meeting the importer dollar requirement from the inflows.
Critics blame the Central Bank for raising the rates to sky-high levels pushing many out of business and scores of others out of jobs while shrinking the economy.
The elevated interest rates helped control credit flows into funding the imports while the weaker rupee against the dollar also discouraged imports as it made the rupee value of foreign made goods more than double in price from where they were before March.
The Central Bank on March 7 floated the rupee without any safeguards to prevent excessive depreciation causing the currency to shed 80 percent of its value against the US dollar.
Based on the most recent merchandise trade data, imports to Sri Lanka fell by 15.8 percent in September to US$ 1,284 million from a year ago and from nearly Rs.2.0 billion a month in January this year, bringing the imports bill into parity with what the country earns from exports and remittances.
However, as Sri Lanka is approaching the year-end festive season when the typical demand sees a spike, it is uncertain if the country’s existing dollar inflows are sufficient to finance what they need for somewhat higher imports during this period.
In another round of easing import controls, the government last week lifted restrictions on 78 items after removing restrictions on 708 items in September.