© . FILE PHOTO: People walk past the main entrance to the Central Bank of Sri Lanka in Colombo, Sri Lanka, March 24, 2017. REUTERS/Dinuka Liyanawatte
By Uditha Jayasinghe COLOMBO () – Sri Lanka’s sudden devaluation of its local currency and the imposition of import limits on hundreds of items is likely to disrupt value chains and push up consumer prices that are already skyrocketing, analysts and retailers warned. Sri Lanka’s central bank said earlier this week that it set the cap for the rupee at 230 for the dollar, effectively devaluing it by nearly 15%. For its part, the Treasury Department on Wednesday restricted imports of 367 non-essential items, including fish, footwear and wine, and said only valid licensees should be allowed to import them in limited quantities. But experts and industry representatives warned that the steps — taken with the intent to boost exports, discourage imports and save foreign exchange for essential items like fuel and medicines — could hurt the economy even more. “More than 60% of imports are destined for value-added exports,” an importing industry representative told on condition of anonymity given the sensitivity of the issue. “It has been two years since the government started imposing import restrictions, but they have not helped the economy. These restrictions only increase bureaucracy, hinder trade and reduce government revenues.” The government began imposing restrictions in March 2020 to prevent the withdrawal of its foreign exchange reserves, which had fallen to a paltry $2.31 billion by the end of February this year, with more than $4 billion in external debt servicing the remainder. The rupee, the cabinet spokesman said, is expected to attract remittances while discouraging imports. However, some complained that the move came without adequate warning. “The sudden rise in the rupee has caused chaos,” said Harpo Gooneratne of the Colombo City Restaurant Collective, who warns that higher costs will have to be passed on to consumers. “Restaurants may not be able to take the blow. Some are already looking at bulk orders for items like flour, meat, butter and cheese, but that’s not sustainable.” Gooneratne, who owns 10 restaurants in Colombo, warned that import restrictions, including those on cigars, beer and wine, could hit tourism, which the government has been aggressively promoting to boost foreign exchange earnings and economic recovery. Food inflation in Sri Lanka reached 25.7% in February, driven by higher global commodity prices and supply problems. Analysts believe the measures taken by the government and the central bank could have a further adverse effect. Disclaimer: Fusion Media would like to remind you that the data on this website is not necessarily real-time or accurate. All CFDs (Stocks, Indices, Futures) and Forex prices are not provided by exchanges but rather by market makers, and therefore prices may not be accurate and may differ from the actual market price meaning prices are indicative and not suitable for trading purposes . Therefore, Fusion Media does not bear any responsibility for any trading losses that you may incur as a result of using this data. Fusion Media or anyone associated with Fusion Media accepts no liability for any loss or damage resulting from reliance on any information, including data, quotes, charts and buy/sell signals on this website. Be fully informed about the risks and costs associated with trading the financial markets, it is one of the riskiest forms of investment possible.