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Open Account ban to create ‘severe’ food shortage by end-June 

8 months ago

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  • Essential food importers in Pettah starting to go out of business
  • Complain that banks have no dollars for imports through LCs
  • Importers say food shortage will come far before PM's August prediction
  By Imesh Ranasinghe and Imsha Iqbal  Sri Lanka is expected to face a severe shortage of essential food items by the end of June, as the ban on open account transactions by the Central Bank of Sri Lanka (CBSL) is pushing importers out of business, The Morning Business learns. During a series of interviews conducted by The Morning Business at the Pettah market yesterday (24), a large-scale importer said that the ban on transactions based on open accounts and Documents against Acceptance/Payments (DA/DP) will make it impossible for them to import essential food items to Sri Lanka, as the banks do not have the necessary US dollars to facilitate imports. “The Prime Minister said there will be a severe food shortage by August, but by banning Open Account transactions for imports, the food shortage will occur by the end of next month when the stocks run out,” he added.  The importer, who did not wish to be named – who imports several essential food items, including rice, dhal, potatoes, onions, and spices – said that he will be forced to close down his business and ask employees to leave if he cannot import through any other method. He claimed that most of the importers and traders in Pettah have enough stocks for only one month due to storage problems. He himself has an air-conditioned storeroom, where he stores mostly potatoes and onions, which can be stored for a maximum of one month. He charged that if banks could provide dollars to importers like himself, then they would not face any issues from the ban on open account transactions. “When the dollar rate was at Rs. 203, we purchased it at Rs. 300, and now it’s over Rs. 400, but not all sellers have enough dollars in one place,” the importer said, adding that they are spending large amounts on buying dollars at a higher price and selling products at a lowered margin, sometimes at a loss, only because they want to continue doing business and provide food for people. The importer said that he also provides rice and other essential food items to Lanka Sathosa.  Further, he said that although he and many other essential food item importers in Pettah have submitted applications to obtain dollars from the credit line provided by India for essential imports, there has not been a response from the authorities for two months. “We cannot hope that there will be dollars now,” he added. He also said that the Consumer Affairs Authority (CAA) had visited Pettah on Monday (23) and had collected details on the stock levels among traders and importers. Another importer and distributor of consumer goods said that the amount of imports have reduced in both quantity as well as quality. He said that even though the price of imported goods has increased significantly, he is not necessarily considerate of the quality of the food, as purchasing these goods alone has become a struggle.   “If a vessel dispatches 50 containers, the amount of imported goods has lessened 10%,” he noted. Lamenting over the CBSL’s directive in suspending open account transactions, he said that the CBSL does not seem to acknowledge that small-scale importers go through much difficulty in receiving dollars from banks, where there are no dollars, in fact, to open Letters of Credit (LCs), unlike large-scale importers in the country.  He also said that the cost of these commodities would be increased in line with the cost the importers have to bear in purchasing such.  Another essential food distributor stressed that unlike dhal and sugar, commodities such as onions cannot be stored for a long period of time. Therefore, dollars need to be provided regularly by the banks, otherwise the supply chain would be disrupted when the stocks run out or go stale. We were also able to talk to a textile importer and merchant, who is a member of a Pettah-based textile association, who wished to remain anonymous. He stated that collectively, the association had informed Prime Minister Ranil Wickremasinghe and CBSL Governor Dr. Nandalal Weerasinghe of the bottom line effects of the suspension on open account transactions, but it is yet to receive a response.  Due to this suspension, the predicament faced by importers in solely relying on the opening of Letters of Credit (LCs) during a foreign exchange crisis is anticipated to affect their livelihoods as well as result in shortages of clothing items, he said.  He added that the banks are not willing to provide the requested amounts of dollars, as the banks are restricting such allowances, having prioritised medicine and food as essential items.  Speaking to The Sunday Morning Business last week, Sri Lanka Customs Deputy Director (Legal) and Media Spokesman Sudattha Silva pin-pointed  that the open account import method was, in fact, introduced to the country in 2012 by the Regulation No. 1739/3, which is under Section 20 of the Imports and Exports (Control) Act, No. 1 of 1969.   However, under these provisions of the Regulation No. 1739/3, the operation of the “undiyal” (informal) money transfer system seemed to create a loophole that could be exploited by importers.   

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