Sri Lanka has imposed a 100 per cent cash margin on letters of credit (LC) for over 600 items, including carpets, chocolates, wine and raincoats, to discourage unnecessary imports as the country is facing a severe foreign exchange crisis. The monetary board of the Central Bank of Sri Lanka (CBSL) took the decision at a recent meeting. The order was issued under the Monetary Law.
The new margin requirement has come in effect from September 8. Licensed commercial banks have also been barred from offering credit to importers to meet the margins.Sri Lanka has imposed a 100 per cent cash margin on letters of credit for over 600 items, including carpets, wine and raincoats, to discourage unnecessary imports as the country is facing a severe foreign exchange crisis. The monetary board of the Central Bank of Sri Lanka took the decision at a recent meeting. The order was issued under the Monetary Law.#
Finance minister Basil Rajapaksa recently told parliament that the country is facing a severe foreign exchange crisis with revenues falling and expenses continuing to rise.
According to CBSL data, Sri Lanka's foreign reserves fell to $2.8 billion at the end of July, from $7.5 billion in November 2019, when the government took office.
On August 31, President Gotabaya Rajapaksa issued emergency regulations to contain soaring inflation after a steep fall in the value of the country's currency caused a spike in food prices.
President Rajapaksa declared the state of emergency under the public security ordinance to prevent the hoarding of essential items.
The government appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices.
The Sri Lankan rupee has fallen by 7.5 per cent against the US dollar this year. The Central Bank of Sri Lanka recently increased interest rates to shore up the local currency.
Sri Lanka, a net importer of food and other commodities, is witnessing a surge in COVID-19 cases and deaths which has hit tourism, one of its main foreign currency earners.
Partly as a result of the slump in tourist numbers, Sri Lanka's economy shrank by a record 3.6 per cent last year. The country is currently under a 16-day curfew until Monday because of a jump in COVID-19 cases.
ALCHEMPro News Desk (DS)
marketing@alchempro.com
