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Importers warn of food crisis soon, if open account import ban is not lifted
Importers complained that the open account import ban that is applicable as of May 20 may worsen the essential imports deficit Sri Lanka is facing.
“A food shortage will happen soon if this is not changed,” said Essential Food Commodities Importers and Traders Association President G. Rajendran.
Under a Central Bank directive approved last month, all imports under the open account system, which requires no bank involvement, are banned.
Goods are generally cleared directly at Customs based on agreements between traders where payments were concerned.
“During the past eight to ten months the use of open accounts for trade increased significantly due to the dollar shortage,” Mr. Rajendran said.
The trade method was banned by the Central Bank in an effort to curb the increasing use of the Undiyal or Hawala money transfer practices that were blocking much needed foreign exchange from entering the formal banking system.
However, importers lament that the alternative DP, DA terms and LCs methods were not viable due to the severe foreign exchange deficit the market was still suffering from. “The banks are not releasing dollars yet and we have already seen a 40% decrease in the amount of imports coming in to the country,” Mr. Rajendran said.
Reducing imports had been one of the Central Bank’s goals at the time the measure was approved, however importers claimed the impending food crisis would be exacerbated if more imports were stopped. Moreover, some of their creditors had not been paid for almost 200 days.
Mr. Rajendran also said even though less imports were coming in, the spending capacity had also decreased significantly. He noted that prices of staple foods such as dhal were especially higher in outstation areas because of the fuel costs involved in their transportation from Colombo.
“We have been to a few meetings with Prime Minister Ranil Wickremesinghe and he said he will reconsider the decision about open accounts given how grave the situation is, but the reversal of the gazette has to come fast in that case,” he said.
Importers also complained that approvals for the funds from the Indian credit line were extremely slow in making their way to the market.
The Sunday Times reached out to Trade Ministry sources who claimed that US$180 Mn of the credit line had been allocated for essential foods, US$200 Mn for pharmaceuticals, and US$250 Mn for industrial raw materials. The source noted that Rs. 300 Mn had initially been allocated for food but this was later reduced to pay for fuel. The source also noted that they did not know the reasons for the delays but that the Finance Ministry was in charge of releasing the funds. Registrations are handled by the Trade Ministry and then directed to the Finance Ministry.
Despite the official allocation being US$180 Mn, Finance Ministry sources claimed that more than US$200 Mn had been set aside for food imports.
“Banking processes for more than US$200 Mn worth of food orders have been started,” said Manjula Hettiarachchi, Additional Director General of the Development Finance Department. According to Mr. Hettiarachchi almost all the allocations had been approved for importers.
The catch however was that exporters were paid in Indian Rupees. He noted that importers were miffed however due to the fact that they were expected to make payments upfront.
“Importers are used to having long credit periods of about six months but under the credit line they need to pay for their supplies directly to the Treasury. We have worked out the necessary procedures, the ball is in their court,” he said.
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