ECONOMYNEXT – Sri Lanka plans to lift import controls on 100 items which were banned during forex shortages in the past two years, which was hurting small and medium industries, State Minister for Finance Shehan Semasinghe said.
Sri Lanka had controlled imports of 3,000 denoted by HS codes out of a total of 8,000 during the past two years. The controls were then brought down to 1,000 as they hurt a small and medium industries which depended on inputs.
“By the beginning of next month will be able to lift controls on another 100 items,” Minister Semasinghe told parliament.
“We hope to relax controls on imports that are needed to expand economic activities.”
Sri Lanka’s central bank started to mis-target interest rates to close a so-called output gap (monetary stimulus) from early 2021 and triggered severe forex shortages and the worst currency crisis in its history.
Sri Lanka and countries with reserve collecting central banks which suppress interest rates with liquidity injections tend to impose import controls to continue money printing, instead of correcting its centrally-planned policy rates and liquidity injections or inflationary central bank credit.
“Balance of Payments difficulties cannot be solved by intensifying the rigorous of exchange control and import restrictions; nor by extending the schemes for expanding domestic production to substitute import goods — the so called measures for “economising” on foreign exchange,” classical economist B R Shenoy said in a report to Sri Lanka’s leaders as far back as 1966.
“Intensification of the rigorous of exchange control and import restrictions may reduce the
quantum of import goods flowing into the market.
“The remedy to this problem lies in putting a stop to inflationary financing, not in tampering with the normal course of international trade.”
By June Sri Lanka will present a plan under an International Monetary Fund program giving a timeline to remove import controls, Minister Semasinghe said.