Amidst various measures being implemented by the Central Bank of Sri Lanka (CBSL) and the Government in order to improve the foreign exchange liquidity conditions in the domestic banking system, the CBSL stated that it commits to ensure the foreign exchange availability for the importation of essential food items, yesterday (30).
In a statement the CBSL stated: “Against this backdrop where the trading community is concerned over shortages of essential food items in the country due to payment restrictions, the CBSL would like to reassure its commitment to ensuring the availability of foreign exchange within the banking system for the importation of essential goods, including the food items, in the ensuing period.
“Further, the CBSL would like to underscore 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 would not result in any hindrances to manufacturers of export goods.”
This comes following the Ministry of Finance issuing Import Control Regulations on Payment Terms No.07 of 2022, dated 6 May 2022, to be effective from 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.
Accordingly, the CBSL is in a continuous dialogue with the banking community in order to ensure the facilitation of essential goods imports highlighted that 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 said that it has commenced negotiations with the Trade Association and other parties
who are 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 Sri Lanka Customs, in order to 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 imports 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.
Thus, the Essential Food Commodities Importers and Traders Association has assured the
Central Bank during recent discussions that they would not resort to engage in grey market activity and extend the fullest co-operation in traversing through these challenging economic conditions.
Accordingly, collective efforts 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.
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.
The CBSL further said: “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.”
Moreover, 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 requested the trading community and the general public to act responsibly under these challenging circumstances. Any over-importation and stockpiling of essential goods, including food items, at the trading community level, as well as any over-purchasing of the same at consumer level would be undesirable under these circumstances.
Given the constraints that the country is facing in terms of the availability of foreign exchange to ensure an uninterrupted supply of essential goods, it is the duty of all stakeholders of the economy to manage the scarce foreign exchange liquidity in a calculated manner, the CBSL stated. Once the country is back on a strong footing and able to withstand the pressures on the external front, both the trading community and the general public would equally benefit in the period ahead.