Sri Lanka is about to face a severe essential food crisis following the imminent decline in the importation of commodities like rice, sugar, dhal, chickpeas, coriander and other lentils etc as a result of the ban on imports via open account payment terms, essential food commodity importers and traders complained. This catastrophic situation erupted due [...]

Business Times

Importers to put essential food imports on hold

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Sri Lanka is about to face a severe essential food crisis following the imminent decline in the importation of commodities like rice, sugar, dhal, chickpeas, coriander and other lentils etc as a result of the ban on imports via open account payment terms, essential food commodity importers and traders complained.

This catastrophic situation erupted due to dollar crisis coupled with a socio political calamity and indirect restrictions of the government by banning open account imports has become an unbearable stumbling block for food commodity importers, they pointed out.

The open account payment terms was a method frequently used by importers to bring down essential food commodities bypassing the formal banking channels due to procedural delays and dollar shortage, they pointed out.

This method has been followed by food commodity importers for urgent imports specially when there was sudden shortage of essential food item from a long time even before the dollar crisis, a leading commodity importer said.

The Finance Ministry issued a gazette notification with necessary guidelines recently banning the imports using open account payment terms with effect from May 20.

The Central bank recently announced that around 25 per cent of the country’s imports (US$1.6-1.8 billion dollars a month) were carried out by using open accounts and over 12 per cent through documents against payment (DP) terms and documents against acceptance (DA) terms.

The aim of banning the open account system which was in operation for a long period is to make all payments on imports to Sri Lanka through a banking system compulsory for local importers, it added.

An open account transaction is a sale where the goods are shipped and delivered before payment is due providing an advantage for the importer in terms of cash flow and cost and the extension of credit by the seller to the buyer is more common abroad.

The goods, together with all the necessary documents, are shipped directly to the importer who has agreed to pay the exporter’s invoice at a specified date under this method.

Sri Lanka imports around $200 million of food a month including onions, potatoes, sprats, lentils and cereals and rice to meet the needs of consumers.

The clampdown on the dollar buying from markets, open account food imports and forcing Pettah traders to open Letters of Credit (LCs) or set Customs authorities to crack down on food importers who do not fully settle bills through official channels will be creating an unprecedented food shortage within the next two months, traders said.

The noted that this will also create an unbearable price hike of food items until the authorities take remedial measures they added.

Before the dollar crisis, importers used to make payments for their overseas supplier’s via dollar transactions from banks and sometimes buying dollars from the market at a higher rate for emergency imports and delays in bank transactions,

P.M. Abeysekera, Consultant of Essential Food Commodities Importers and Traders Association told the Business Times that several leading importers use open accounts for the importation of essential food commodities based on their relationships with suppliers.

This system is being used frequently in recent times as there is limited foreign exchange available to fund letters of credit (LCs), he disclosed.

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