Sri Lanka bans more imports after printing excess money amid Coronavirus crisis

ECONOMYNEXT – Sri Lanka has banned more imports until July 2020 while allowing some items to be imported on three months credit, according to an order under the country’s export and import control law of 1969, which was used in the control economy period of 1970s.

Among the most problematic items that have been restricted include screws, nuts and bolts, asbestos washers, batteries, small motors, which can bring the country’s industrial machinery, vehicles and equipment to a standstill like in the 1970s, observers say.

Rice, fish, ornamental fish, grains, maize, black gram, vegetable oil, mall, pasta, communion wafers (used by churches), alcohol, vinegar, cement, paints, essential oil, asbestos washes, granite, marble, ceramic tiles, sanitary ware, have been banned.

Wrist watches, beauty products, wigs apparel, some building materials, wood items, footwear, festive or carnival items and brushes have been banned

A series of other items are allowed on three months credit.

Milk and cream in powder with sugar, yoghurt (HScode 4.02, 4.03), dhall, red lentils (07.13), wheat and meslin (10.01), palm oil, sunflower oil (15.11, 15.12), cane or been sugar (17.01), cement 25.23, coal (27.01), iron and steel, rolled iron (72.01-29), alloy wires (72.29) and sheet piling iron 73.01.

Railway tracks (73.02), tubes (73.04-06), fabricated metal items (73.08), tanks (73.09), screws, nuts, bolts, rivets, cotter pins, (73.18), sewing needles (73.19), springs and leaf springs (73.20), cookers (73.21), radiators (73.22), iron, sanitary wear (73.24), electric motors (85.01), solar cells and motors (85.01), electrical transformer items (85.04), electro magnets, (85.05), batteries and cells (85.06), lead acid batteries (85.07).

Sri Lanka’s central bank cut rates from January 30 and started printing money from the last week of February and sharply ratcheted liquidity injections in March, putting pressure on the rupee and breaking the credibility of the soft-peg.

At least 140 billion of the money however had been drawn down from the system with higher use of cash in the country. But money had been printed in excess of the drawdown.

On Friday overnight excess liquidity in the banking system shot up to 140 billion rupees from 84 billion rupees a day earlier with the Treasury bill stock of the central bank going up to 283 billion rupees from 263 billion.

Another 15 billion rupees were offered to be injected by the central bank despite the excess liquidity and 1.5 billion rupees were taken at 6.50 percent the middle of the policy corridor.

During the tenure of Governor Indrajit Coomaraswamy the country lost the protection of the policy corridor and external risks expanded, analysts have pointed out.

In addition another practice of not buying long term bonds, which given the power for the central bank to suppress the longer term yield curve and create more distortions, a rule operated by then-Governor A S Jayewardene was also casually abandoned.

In the 1970s most of the the Treasury bills were owned by the central bank. Governor Jayewardene started a secondary market in bills to get real saving and reduce money printing and stop the country going back to the 1970s forex shortage and import control era. (Colombo/Apr19/2020)