Sri Lanka eyes tougher import controls to halt forex crisis

29 June, 2021 12:00 AM printer

COLOMBO: Sri Lanka’s central bank on Monday called for further import restrictions to address a crippling foreign exchange crisis, following a string of loans from Asian neighbours including impoverished Bangladesh.

The island nation’s foreign exchange reserves were badly hit last year as the Covid-19 pandemic hit and the local currency came under intense pressure and fell to a record low, reports AFP.

International rating agencies have since expressed fears that Colombo would not be able to service its huge foreign debt.

The Central Bank of Sri Lanka last week tightened its controls on dollar sales, leading commercial financial institutions to impose quotas on importers of essential commodities.

But central bank governor W. D. Lakshman said more restrictions were needed.

“What the central bank is doing now with the participation of all commercial banks, is judicious management of imports and foreign reserves,” Lakshman said in a statement.

The bank was “of the view that there is further space to curtail non-essential and non-urgent imports,” he added.

Sri Lanka had already banned luxury goods and car imports since last year to combat the outflow of foreign currency.

The ban first imposed in March last year applied to tumeric—a staple in local curries, tiles, toilets, tyres, cosmetics, vehicle spare parts, electronic and electrical appliances.

The country’s foreign reserves are currently at $4 billion, down from $7.8 billion in late 2019 when the government of President Gotabaya Rajapaksa came to power promising robust growth.

The economy shrank by a record 3.6 percent last year—the worst downturn since independence from Britain in 1948 -- as the pandemic wiped out the island’s lucrative tourism sector.