Fresh concerns surface over shortage of essential food items amid restrictions on open account trade

• Importers warn SL could face shortage of essential food items due to excessive restrictions on open account trade
• Say exemption given to import 10 essential food items not effectively implemented as Trade Ministry has so far granted approval for just one item
• CB expresses dismay over 10-item exemption by govt. and says it will allow further hike in black-market interest rates  

By Nishel Fernando 
While rejecting the Central Bank’s (CB) claim that open account trade is fuelling grey market activities, depriving the formal banking channels of the much-needed foreign exchange, the essential food importers and traders warned that the country could see shortages of essential food items, due to the excessive restrictions imposed on open account trade.

The government recently allowed 10 essential food items, which included rice, lentils, onion and potatoes, to be imported under open account terms, with effect from July 01, for a period of two months. However, the industry officials pointed out that the exemption is subject to securing approvals from the Trade Ministry. So far, the Trade Ministry has granted approval for only one item.

Earlier, the Finance Ministry, upon instructions of the Monetary Board, clamped down on imports that are paid through the open account payment terms or consignment account terms, subject to conditions, effective from May 20.

“If the government put too much restrictions, there will be shortages of essential food items in the country. Today, you can go to the market and purchase these essential items only because of the open account system,” Essential Food Commodities Importers and Traders Association (EFCITA) spokesperson Nihal Seneviratne told Mirror Business. 

However, CB Governor Dr. Nandalal Weerasinghe continued to defend the CB’s stance on open account trade while expressing fresh concerns over the government’s decision to provide exemptions for 10 essential food items under open account trade.

“Hawala/Undiyal business happens through this open account channels. We imposed a ban. As a result, we saw the black-market rates coming down almost close to our official rate. However, there was pressure from people who are engaged in Hawala/Undiyal business in Colombo to import essentials and they got some items exempted from the ban we imposed. Now, we can see Hawala/Undiyal business going back again and the black-market premiums also going up. We didn’t recommend this to the government,” Dr. Weerasinghe told reporters in Colombo, last week.

Responding to the CB’s claims, Seneviratne denied that all essential food importers are sourcing the required dollars from black/grey foreign exchange markets while stressing that the importers are ready to abandon open account trade, if they are given the required dollars through the banking channels to settle payments to their suppliers. 

“Open account and DA terms are an arrangement between the buyer and seller, based on mutual understating and trust, to import goods on credit terms. Even Sri Lankan exporters, 

who export local products to the other countries, extend credit facilities to their buyers. Without such understanding, you cannot do international trade now,” he elaborated.

In particular, he emphasised that unlike fuel, perishables such as onions, potatoes, garlic, dry chillies and dry fish (sprats) cannot be kept waiting at the port until traders secure the required dollars to clear the cargo shipments.
As the country defaulted on its foreign debt, he noted that most foreign banks and suppliers are not recognising the letter of credit (LC) facilities of Sri Lankan banks. Therefore, he stressed that open account trade remains one of the few options to ensure the country’s food security.

“When you stop open accounts, you are basically saying no to credit facilities offered by the suppliers based on our long-standing relationship,” he added.

According to the industry, the country requires around US $ 100 million to import the essential food items monthly.
Meanwhile, fresh concerns have arisen of wheat and sugar imports, as India has banned export of sugar and wheat flour.

However, Seneviratne commended the current CB’s administration efforts in reviving the country’s economy since April. “We, as the business community, appreciate very much the Governor and his team’s effort in reviving the economy of our beloved country,” he said.