Sri Lanka import controls to continue as long as BOP dictates: CB Governor

ECONOMYNEXT – Sri Lanka will continue import controls as long as the balance of payments problems persist, under an ‘alternative’ economic framework, Central Bank Governor W D Lakshman said.

“The present regime of import rationalization, restricting un-necessary or inessential imports – that will be continued as long as the balance of payments requirements dictate,” Governor Lakshman told reporters in Colombo.

“No one should be thinking of a complete long term kind of import restricting regime.

“But some import restrictions or as we call it – a system of import rationalization – has to continue as long as the balance of payments so requires.”

Governor Lakshman had said Sri Lanka was perusing an ‘alternative’ economic framework involving import controls to boost domestic production.

Sri Lanka is also printing money under so-called ‘modern monetary theory’, which critics had said would create forex shortages and balance of payments troubles with a pegged exchange rate regime.

Sri Lanka would like to see the exchange rate around 185 to the US dollar, the central bank has said, but had been intervening around 195 to the US dollar in recent weeks.

Meanwhile, Governor Lakhsman said the current economic framework is being criticized by some on either political or ideological biases.

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“I suggest that we have to take an alternative scenario approach presenting a different kind of position taking into account the alternative policies that are being adopted,” he said.

In the third quarter of 2020 Sri Lanka had also recorded a current account surplus he said. Annual current account surpluses are rare, he said.

Sri Lanka’s forex reserves fell to 4.8 billion US dollars in January 2021, and efforts are underway to boost reserves through a variety of means. All debt would be repaid, Governor Lakshman said.

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Analysts have called for a reform of the Sri Lanka’s Latin America style central bank to bring back monetary stability, free trade and free capital flows.

Most pegs set up by the Latin America unit of the Federal Reserve, inspired by Argentina central bank creator Raul Prebisch had ended up in import substitution and sovereign default, analysts have said.

The Fed set up a Latin America style central bank in Sri Lanka, ending a currency board, brining balance of payments troubles within two years.

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When the soft-peggged central bank was set up, there was foreign reserves equal to 11 months of imports. (Colombo/Feb15/2021)

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