• Sri Lanka recorded US $ 21.5bn merchandise imports in 2021 despite a languishing economy 
• Recent move to distribute financing of essential imports through licensed banks would ensure system has adequate liquidity to meet all other imports 
• Essential imports roughly account for a third of inflows from exports and remittances 
• Central Bank wants to avoid a scenario where country has all non-essentials but struggles for essentials

Sri Lanka can comfortably accommodate all essential imports plus non-essential goods without any disruption or shortages from the inflows envisaged, according to Central Bank Governor Ajith Nivard Cabraal.

According to Cabraal, the rationale behind the recent move to broad base the financing of essential imports such as oil, coal and other items among licensed banks in proportion to their inflows, without confining only to the two state banks, is to ensure that all essential goods are given priority, as the recent import numbers suggest that the country has a comfortable margin to meet all such imports. 

Sri Lanka on January 20 decided to distribute the financing of essential import bills for fuel purchases among licensed banks in proportion to their foreign exchange inflows as part of a broad package of tools to ease the pressing foreign exchange conditions at present.  

“Last year we saw US $ 21.5 billion worth of items being imported. So, that is a comfortable number to have accommodated the essentials,” Cabraal said. 

“So, the fact that there were some concerns about essentials means that, before the essentials were met, non-essentials were also being imported. If you go to some of the supermarkets, you would probably see some items, which are not absolutely essential. But oil is, at the same time coal is, essential in order to generate electricity,” he said explaining the reasons behind the recent move.  The 2021 merchandise imports expenditure of US $ 21.5 was the highest ever recorded by Sri Lanka, reflecting booming imports even amid a languishing economy. 

Until recently, the essentials such as oil, coal and the likes were funded by the foreign exchange released by the two state banks. But with other licensed banks also coming in, the Central Bank is of the belief that it will provide a comfortable passage for essential imports to flow through while making sure that everybody plays its part at this challenging time. 

“We have had a discussion with the bankers and we have reached agreements where they will also take part in the essential items so that we do not provide that only to the two state banks. All will take part in it so that the essentials are hereafter given first priority. After that, the others can be imported,” Cabraal said.

He estimates the essential imports would come to about a third of the total inflows generated from merchandise exports, remittances and other services inflows.  “We don’t want to see a situation where we have to struggle for essentials and all other non-essentials are there. I don’t think any of you would like to see that happening,” he said.