COLOMBO: Sri Lanka has imposed a 100 per cent cash margin on letters of credit (LC) for over 600 items ranging from chocolates and wine to raincoats and carpets to discourage unnecessary imports as the country is facing a severe foreign exchange crisis.
The decision was taken by the Monetary Board of the Central Bank of Sri Lanka at its meeting held on Wednesday.
The board issued the order under the monetary law.
The new margin requirement will be in effect from September 8 for over 600 items ranging from chocolates and wine to raincoats and carpets to discourage imports, it said.
The licensed commercial banks have also been barred from giving credit for importers to meet the margins.
Licensed commercial banks shall not grant any advances to their customers for the purpose of enabling such customers to meet the minimum cash margin deposit, the Central Bank said.
The directive has described 693 items through customs codes including, chocolates, spaghetti, apple juice, wine, oats, soya milk, dairy goods, lipsticks, carpets, coats anoraks and electronic goods.
Two days ago, Finance Minister Basil Rajapaksa told parliament that Sri Lanka was facing a severe external crisis as well as a domestic crisis with revenues falling and expenses continuing to rise.
Our country is facing a severe foreign exchange crisis he said.
On August 31, President Gotabaya Rajapaksa issued emergency regulations to contain soaring inflation after a steep fall in the value of the country's currency caused a spike in food prices.
President Rajapaksa declared the state of emergency under the public security ordinance to prevent the hoarding of essential items, including rice and sugar.
The government appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices.
The move had come after the prices of most essential goods skyrocketed due to the falling local currency and high global market prices driven by the COVID-19 pandemic.
The Sri Lankan rupee has fallen by 7.5 per cent against the US dollar this year.
The Central Bank of Sri Lanka recently increased interest rates in a bid to shore up the local currency.
According to bank data, Sri Lanka's foreign reserves fell to USD 2.8 billion at the end of July, from USD 7.5 billion in November 2019 when the government took office and the rupee has lost more than 20 per cent of its value against the US dollar in that time.
Sri Lanka, a net importer of food and other commodities, is witnessing a surge in COVID-19 cases and deaths which has hit tourism, one of its main foreign currency earners.
Partly as a result of the slump in tourist numbers, Sri Lanka's economy shrank by a record 3.6 per cent last year.
The country is currently under a 16-day curfew until Monday because of a jump in COVID-19 cases.