Colombo: Sri Lanka cannot afford to resume vehicle imports since the country is still grappling with an acute shortage of US dollars, a senior minister said on Friday, nearly a week after the cash-strapped government lifted import restrictions on nearly 300 items.
“The exchange rate of the US dollar is now determined by supply and demand. We don’t spend our reserves to maintain the dollar rate now,” Ranjith Siyambalapitiya, the state minister of finance said. Last week, Siyambalapitiya hinted that the government may resume vehicle imports to boost tax collection.
Things got complicated, however, when the government had to spend nearly USD 80 million last week to import fuel. “If USD 75-80 million could make such an impact, then we need to closely consider the impact when vehicle imports are allowed as they consume a large volume of dollars,” Siyambalapitiya explained. Going forward, the minister said that the proposal to import vehicles must be studied in depth.
“As a country, we are trying to recover from a huge economic crisis. Therefore, instead of taking decisions based only on the outer surface, we should examine all the aspects and explore deeply the impact on the entire economy,” he added. Last week, the finance ministry lifted import restrictions on 286 items.
Nevertheless, Sri Lanka’s economy shrank 11.5 per cent in the first quarter of 2023 from the previous year, government data revealed. While the agricultural sector had expanded by 0.8 per cent, the industry and service sectors had declined by 23.4 per cent and 5 per cent respectively during this quarter, it added. Last year, Sri Lanka plunged into its worst economic crisis since its independence in 1948 due to plummeting foreign exchange reserves that caused severe shortages of essential items and triggered massive public protests. In April 2022, Sri Lanka declared its international debt default due to the forex crisis.
In March this year, Sri Lanka secured a USD 3 billion bailout package from the International Monetary Fund (IMF).
The country needs to complete debt restructuring talks with its creditors, notably China, India, and Japan, and implement key economic reforms ahead of the first IMF review in September.
The IMF bailout, the 17th in Sri Lanka’s history, called for hard economic reforms such as tax hikes, utility rate hikes and divesting loss-making state business enterprises, which have been met with stiff political opposition.
India has extended multi-pronged assistance to Sri Lanka during the peak of its economic and humanitarian crisis in line with its “Neighbourhood First” policy and as an earnest friend and partner of Sri Lanka.
Sri Lanka’s unprecedented financial crisis in 2022 also sparked political turmoil in the country, leading to the ouster of the all-powerful Rajapaksa family.