Sri Lanka tightens trade restrictions as nation faces financial crisis

14 Mar '22

2 min read

Pic: Shutterstock

Sri Lanka's Central Bank tightened trade restrictions late last week, asking exporters to repatriate foreign exchange (forex) earnings within 180 days of transactions to improve depleting forex reserves as the country faces its worst financial crisis in over a decade, struggling to pay for imports, including fuel, food and medicines, and with just $2.31 billion of reserves.

The bank's moves include mandatory currency conversion for exporters of goods and services to change their foreign exchange earnings into Sri Lankan rupees, according to media reports from the country.

"All licensed banks are required to strictly monitor receipts of goods to Sri Lanka," the central bank stated in a notification, adding that it "has the right to initiate action against non-compliance by any exporter or licensed banks".

Meanwhile, central bank governor Ajith Nivard Cabraal expressed optimism about the country being able to pull through, but stressed the importance of measures that ‘may be not very palatable’. ″We have the confidence to say that Sri Lanka would go through these times for a short period … We should be able to get out of this situation sooner than later,” he was quoted as telling a TV channel.

The International Monetary Fund (IMF) has said the country’s is facing ‘mounting challenges’, such as ‘unsustainable’ public debt levels, low international reserves and persistently large financing needs, and has called for urgent economic reforms.

Power generation has also been hit by the forex crisis, due to fuel shortage. Power regulators have warned of five to six hours of daily load-shedding over the next few days.

Instead of the IMF, the Sri Lankan government sought economic packages from India, which materialised in mid-January, affording a temporary reprieve. A further billion-dollar facility from India is being awaited to meet the urgent import needs of essentials.

In January, India announced a $900 million loan to Sri Lanka to build up its depleted foreign reserves and for food imports, amid a shortage of almost all essential commodities in the country. Last month, India sealed an agreement to grant Sri Lanka a credit line of $500 million for fuel purchases.

Fibre2Fashion News Desk (DS)