Sri Lanka slaps 100-pct margin on car import credits amid BOP pressure

ECONMYNEXT – Sri Lanka has slapped a 100 percent margin on import letters of credit for car imports a standard move of authorities after triggering a balance of payment crisis by monetizing debt.

Finance Minister Ravi Karunanayake said the margin will be effective from October 02, as spending on vehicle imports more than doubled to 700 million US dollars in 2015 from a year earlier.

Analysts had warned that massive monetizing of debt and a rate cut by the Central Bank despite an expanding budget deficit will boost credit to unsustainable levels triggering imports.

An earlier move to reduce the maximum value of a loan to 70 percent of the value of a car had been relaxed to 90 percent.

"With a LC margin increase we can relax the loan value," Karunanayake told reporters.

He said banks and finance companies had asked for the relaxation as it was hitting the second hand car market. (Colombo/Oct02/2015)

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