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Import restrictions: No way out amidst dwindling reserves 

14 Aug 2021

By Yoshitha Perera    In the midst of a deepening foreign exchange crisis, the Government was forced to impose temporary import restrictions last year to save its limited foreign reserves.   However, with the present rapid spread of the Covid-19 virus and due to the further decline in foreign reserves in the country, the Government has been pushed to continue with the temporary import restrictions further.  The country’s economy has been immensely damaged with several major lockdowns and restrictions imposed following the spread of Covid-19. Many large and small-scale businesses are suffering to survive in this unpredictable situation. Restrictions to continue into next year Sharing his views with The Sunday Morning, Trade Minister Bandula Gunawardana said that there is a continuing decline in the country's foreign reserves and the Government has to restrict most imports this year and next year. He said: “The Government needs a lot of dollars to import the inputs needed to run many fields such as apparel, fuel, etc., and there is a massive Balance of Payment crisis and trade deficit with the gradually diminishing foreign exchange in the country.”   Further explaining that at the moment there is a severe shortage of dollars in the country, Minister Gunawardana said that the country has to spend $ 4.5 billion or more per year on the country's external debt servicing until 2030.   He further said: “Fuel and lubricants imports will cost approximately $ 3 billion and it will cost another $ 3 billion to import the raw materials required for the apparel sector. We also need many dollars to import inputs needed to run other industries and at the moment, we are facing a massive Balance of Payment crisis.”   Responding to The Sunday Morning’s query on whether the Government is planning to impose import bans on essential items and food commodities, Gunawardana said that the Government's present plan is to continue the temporary import bans imposed on motor vehicles, non-essential items, and luxury items.   He said: “Currently, we are not planning to impose import bans on food items. We have restricted importation of non-essential and other items temporarily, and that is because we don’t really have dollars these days.”   The Minister stressed that the country earned an average of around $ 3 billion per year with the tourism industry and it is a significant contribution. He said: “Tourism is one of the largest foreign exchange earners in the country and due to the rapid spread of Covid-19, we have to suspend every tourism activity in the country. This has affected the country’s economy in a serious manner.”   Purchase of new furniture, office equipment, and vehicles for govt. agencies suspended in 2022 Speaking about the further import restrictions, on 27 July, Treasury Secretary S.R. Attygalle sent the guidelines for the preparation of annual budget estimates for 2022, for all secretaries to ministries, state ministries, chief secretaries of provincial councils, heads of departments, and chairmen of corporations and statutory boards.   In the letter, under the Institutional Capital Expenditure category, the Treasury Secretary clearly stated that in support of the government decision to limit imports and considering the requirement of curtailing expenditure, purchase of new furniture, office equipment, and vehicles for government agencies will have to be suspended in the next year as well.  It further mentioned that: “Therefore, vehicle requirements should be fulfilled by repairing vehicles already available with the government agencies. However, the Treasury will decide appropriately on the purchase of tractors, trucks, ambulances, land vehicles, and other utility vehicles, as and when required.”  Meanwhile, last Sunday (8), Finance Minister Basil Rajapaksa said that the Government is hoping to restrict imports and improve domestic production to save foreign exchange. The Finance Minister has also reversed the Government’s decision to import organic fertiliser and lifted the ban imposed on chemical fertiliser recently.   Importers' and traders' conundrum    The Sunday Morning obtained fresh views from the Essential Food Commodities Importers and Traders Association (EFCITA) on how the decrease in foreign reserves and import bans affected the current importation process.   Sharing insights with The Sunday Morning, EFCITA President G. Rajendran said that at the moment, the essential goods importers are not suffering with any import ban; predicting that if the current economic situation gets worse, there would be difficulties in importing the essential goods as well.   “At the moment, there is no restriction to import essential food items, etc. However, the present dollar crisis in the country will be a problem to import required products, if the Government fails to manage it.”   Explaining further, he said that the Government removed import duties on essential food commodities with immediate effect last year while importers and traders had to incur massive losses. Meanwhile, recently, there was a shortage of milk powder in the market due to the global price of dairy products moving upwards. However, after considering the situation, the Government has removed the taxes on milk powder. Responding to the above decision made by the Government, the Milk Powder Importers Association stated that it is not possible to import milk powder even if the Government removed the tax levy on milk powder.   While stating that there will be no shortage of milk powder in the market with the Government’s present decision, Milk Powder Importers Association Member Lakshman Weerasooriya told the media that even with the removal of tax levy, “with the global market trend, there is a further loss of Rs. 200 and it is vital to increase the price of a kilogramme of milk powder by Rs. 200”.

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