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‘Remittances down in June after open account ban relaxed’

14 Jul 2022

  • Governor Nandalal says kerb market rates rose after decision to relax
  • June remittances are at $ 274 mn, less than May inflows
    By Imesh Ranasinghe  Remittances dropped to $ 274 million in June, as the black market premiums, which were down after the ban on open account transactions, shot up after the Government relaxed the ban for 10 essential food items despite the Central Bank of Sri Lanka’s (CBSL) recommendations against the move, said CBSL Governor Dr. Nandalal Weerasinghe. Speaking in an interview on TV Derana on Tuesday (12), he said the Government, fearing claims from traders of a huge food shortage, relaxed the ban to import 10 essential goods, despite the Central Bank’s opposition to the move over what would happen to black market rates. He said that within two weeks of the ban on open accounts, the black market premiums came down to Rs. 355 from Rs. 400, which, according to him, was the main reason why remittances increased to $ 304 million in May, from $ 248 million in April 2022. He said many traders have informed the Government that there would be a huge food shortage in the country due to the ban, and that they would not be able to carry on their businesses without open account transactions despite assurances from the Central Bank that a portion of dollars would be allocated for them from the foreign reserves, with more dollars coming in. The open account ban, which was imposed in the third week of May, was relaxed to exclude 10 essential items by the second week of June; namely, rice, wheat flour, sugar, potatoes, red dhal, onions, dry chillies, dry fish, beans, and milk powder. Moreover, the CBSL Governor said that the import of eight more essential items are set to be relaxed from the open account ban. Dr. Weerasinghe said that the change in the exchange rate by Rs. 10, caused by dollars going to the black market rather than to the banking system, due to the premiums available with the relaxation of the open account ban, means that fuel prices, electricity rates, and other prices will change accordingly. Also, he said that the change by Rs. 10 in the exchange rate would mean an additional cost of Rs. 14 billion to the $ 1.4 billion incurred on monthly imports. He added that the impact to the economy is huge in comparison to the relief given to import those 10 essential items, as the exchange rate has depreciated more than expected, and prices of goods are already high with 50% inflation. “We from the Central Bank look at the overall impact on the economy, and not just the impact the people will have without 10 good items,” the Governor said. He said that if the US dollars that could have been used to purchase fuel are going to the black market due to the relaxation of open account ban, there will be no means of transporting the items imported under the relaxed restrictions from the ports, due to the lack of fuel. “We should identify our priorities – whether it is importing potatoes and onions, or importing the fuel, gas, and medicine needed by people,” he said.

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