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Sri Lanka import controls hurt economy, business, export competitiveness: Advocata

ECONOMYNEXT – Sri Lanka’s economy which is already hit by Coronavirus, would suffer further from an extension of import controls, which deprives inputs to domestic industry, pushes up costs and raises living costs, generally harming export competitiveness, a think tank has said.

Only 19.8 percent of imports were consumer goods while 57 percent of imports were intermediate goods use to produce other goods and services, Colombo-based Advocata Institute, a free market think tank said.

“The Advocata Institute argues that such import restrictions will further hamper Sri Lanka’s growth prospects and will disadvantage businesses that rely on imported raw materials.”

Sri Lanka slapped import controls after unprecedented money printing in March and April 2020 drove the rupee down to 200 to the US dollar.

Private credit fell in April and there has been a slight pick up in May. Currencies of most emerging markets have stabilized as private credit and consumption collapsed amid Covid-19 lockdowns.

Sri Lanka, which has controlled Coronavirus to a great extent, remains mired in import controls.

Due to strong Mercantilist beliefs and general classical economic illiteracy, people believe the currency falls are somehow linked to import and not money printing (over-issue of reserve money) in a pegged exchange rate regime and credit.

The controls are the worst since most of the external trade was closed in the 1970s, after the Bretton Woods system of soft-pegs collapsed after money printing under then-Fed Governor, Arthur Burns.

The US also slapped import controls (Nixon shock involved a 10 percent surcharge on imports but no bans unlike Sri Lanka), and then floated the currency ending gold convertibility (defending a gold peg).

When domestic prices rise due to import controls, lower-income groups will be particularly hit, Advocata warned. (Colombo/July19/2020-sb)

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