Govt. says import restrictions imposed to honour debt repayments will pay off in long-term

• State Minister Cabraal says govt.’s efforts will be recognised by int’l markets
• Says decision to impose import controls was difficult but necessary
• Stresses restrictions will be relaxed once economy reaches normalcy

By Nishel Fernando
The government expects the “tough” decision to honour the country’s external debt servicing commitments imposing import restrictions, which has come at the expense of living standards of the people amid a shortfall in foreign inflows due to the COVID pandemic, would be recognised by the international community including international markets. 

“We would be holding out to the rest of the world as a government and country that has honoured its commitments. We took the call for the long-term, and that is the message that we want to convey, because when international markets are deprived of their overall ability to function normally, they react even later,” State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal said.

He was addressing an investor forum titled ‘Twenty 21 and Beyond’ organised by Softlogic Stockbrokers in Colombo this week
Cabraal insisted that the move to impose restrictions on imports was difficult but a crucial decision to avert a default on sovereign debt repayments, which came on the expense of living standards of the country’s people. 

“The choice was a tough one. If you take a decline in your lifestyles, sometimes some jobs will be lost; sometimes people will undergo hardships; sometimes people will have certaom shortages, but on the other hand, we will be able to pay our debts,” he said. 

However, he stressed that these import restrictions are temporary and would be lifted once the economy returns to normalcy or to near normalcy while noting that the economy is already showing signs of a strong recovery, particularly with regard to the external front. 

“Our exports have come back to near normal. The remittances are also back to normal. Our tourism is still at zero as a result of that we have a shortfall. However, it is compensated by low oil prices to some extent. Our external account is not bleak as it was three months ago. Hence, the situation is not hopeless after all. We got to have a holding operation now until the condition gets back to normal,” he noted. 

Sri Lanka’s official reserves improved to US$ 7.4 billion in August, which is sufficient to cover 4.7 months of imports and 100 percent of short-term external debt payments, which comprises of US$ 5.4 billion in principal, US$ 1.5 billion in interest and US$ 300 million in contingent obligations. 

In October, Sri Lanka has to settle a US$ 1 billion maturing sovereign bond and an estimated US$ 389 million in interest payments. 

However, critics opine that import restrictions have been imposed on a ad hoc manner, and they are likely to lead to slow growth in investment while creating inefficiencies, although these measures may help to stabilise the rupee while containing the pressure on the country’s balance of payment (BOP).

The State Minister expressed his confidence on the country returning to high growth path in the next five years, overcoming current challenges.

“We have and will put the necessary building blocks for a conducive environment and policy regime. Sri Lanka will come out stronger with more resilience, and an exuberant private sector that can withstand shocks,” he stressed.