Cutting imports to ease pressure on falling Rupee – CB governor
Government measures to suspend all non-essential imports in a desperate bid to halt foreign exchange outflows and stabilise the rupee will result in a forex saving of US$ 923.1 million per month, official provisional data revealed.
The savings from the suspension of motor vehicles imports alone would vary between US$48 million and $65 million per month, with some months higher than the other.
The loss in tax revenue (from motor vehicle imports) will be in the region of $20.8 million (Rs.4 billion) per month and $249.6 million (around Rs.48 billion) per annum, the data revealed.
This data indicated that the cost of vehicle imports is more than double the vehicle tax revenue per month and more than treble the annual vehicle imports to annual tax revenue.
Accordingly the country will be benefited by protecting much needed foreign exchange through this protectionist measure, officials said. On Wednesday, the rupee hit a record low of Rs.200 per
US dollar.
The country’s vehicle dealers possess at least 7000 to 10,000 unsold imported vehicles and therefore there was no need to import motor vehicles at least for three months, vehicle importers said.
But some of the leading franchise vehicle dealers have already placed orders to import around 1000 motor vehicles within the next three months and this will create an issue during the opening of Letters of Credit (LCs).
There will be a shortage of vehicle spare parts as result of the government’s decision to suspend non essential imports.
However motor traders welcome the government’s moves to curtail the foreign exchange outflow at this decisive moment, President of the Vehicle Importers’ Association of Lanka (VIAL) Indika Sampath Merinchige told the Business Times.
Motor traders will have to think out of the box solutions to face this situation as the whole world will have to face economic consequences of the COVID-19 pandemic, he said.
As of April 2, there has been net capital outflows of around US$363 million (0.4 per cent of GDP) since mid February, mostly from the domestic treasury securities market, official data showed.
The Sri Lankan currency has also depreciated by around 4.7 per cent against the US dollar since that time.
The Central Bank will continue to monitor market developments and take further measures as required, while ensuring adequate liquidity in the market in order to facilitate smooth operations and sustain market confidence amidst the COVID-19 outbreak.
If a country’s import cost is more than export revenue then it leads to a trade deficit compelling it to resort to foreign borrowings to pay for the extra imports, officials said.
According to Central Bank Governor W.D. Lakshman, pressure on the dollar was expected to ease by cutting interest rates and suspending non-essential imports.