Sri Lanka tightens trade restrictions as country faces financial crisis

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Central Bank of Sri Lanka tightened trade restrictions late last week, requiring exporters to repatriate foreign exchange (forex) earnings within 180 days of transactions to ameliorate the depletion of foreign exchange reserves as the country faces its worst financial crisis in more than a decade, struggling to pay for imports, including fuel, food and medicine, and with just $2.31 billion in reserves.

The bank’s measures include compulsory currency conversion for exporters of goods and services to convert their foreign exchange earnings into Sri Lankan rupees, according to media in the country.

“All licensed banks are required to strictly monitor the receipt of goods in Sri Lanka,” the central bank said in a notification, adding that it “has the right to take action in the event of non-compliance by any exporter or approved bank”.

The Central Bank of Sri Lanka has tightened trade restrictions, asking exporters to repatriate foreign currency (forex) earnings within 180 days of trades to ameliorate the depletion of foreign exchange reserves as the country faces its worst financial crisis in more than a decade, struggling to pay for imports like fuel, food and medicine and with only $2.31 billion in reserves.

Meanwhile, central bank governor Ajith Nivard Cabraal expressed optimism about the country’s ability to pull through, but stressed the importance of measures that “may not be very acceptable”. “We have the confidence to say that Sri Lanka would go through these times for a short time… We should be able to get out of this situation as soon as possible,” he told a television station.

the International Monetary Fund (IMF) said the country faced “increasing challenges”, such as “unsustainable” levels of public debt, low international reserves and still large financing needs, and called for urgent economic reforms.

Electricity production was also affected by the currency crisis, due to the shortage of fuel. 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 requested economic packages from India, which materialized in mid-January, offering a temporary reprieve. Another $1 billion facility from India is expected to meet urgent import needs for essential commodities.

In January, India announced a $900 million loan to Sri Lanka to build up its depleted foreign exchange reserves and for food imports, amid shortages of nearly all essential commodities in the country. Last month, India reached an agreement to provide Sri Lanka with a $500 million line of credit for the purchase of fuel.

Fibre2Fashion (DS) News Desk

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