According to Minister Nalinda Jayatissa, Sri Lanka will shortly announce plans to lift import restrictions on automobiles.
In Colombo on Tuesday, Minister Jayatissa told reporters, “The decision on vehicle imports was made after taking into account the economic situation, our economic targets, our reserves, and with the close supervision of the Ministry of Finance.”
“Those restrictions should be taken into consideration when interpreting the liberalization of automobile imports. Don’t mislead the public and convey different messages.The finance ministry will soon make an announcement regarding which vehicles are permitted for importation. Once more, I am opposing the relaxation of import rules under certain conditions (yum yum see-mar-ver-ler-ter ya-tuth-wer).
Minister Jayatissa was answering a query on deposits received and ads by auto importers.
Critics have called the decision to ban imports, particularly those that impose high tariffs, after printing money to reach a policy rate a “cascading policy error.”
State revenues are decreased when heavily taxed imports are prohibited, which raises interest rates as borrowing requirements increase and more funds are needed to manage the policy rate.
In 2020, rates were lowered using printed money through direct and open market operations, and Sri Lanka prohibited the importation of cars along with 3,000 other products.
However, when the money that was produced to target a policy rate went into other imports, particularly capital equipment and building materials, and as the central bank refinanced loans went to uncontrolled areas, there were shortages of foreign exchange and an external default occurred nonetheless.
In 2018, despite efforts to reduce budget deficits through greater taxes, restrictions were also implemented, pushing LC margins to 200 percent as money was produced to target policy rates.
Associated
In a “Nixon-shock” measure to safeguard the soft-pegged rupee, Sri Lanka restricts imports.
The exchange rate eventually collapses when a central bank with a policy rate that depletes reserves without permitting market rates to increase (sterilizes interventions with open market operations) runs out of reserves.
Consistent hard pegs and flexible exchange rates do neither sterilize reserve withdrawals or employ central bank reserves for private imports.
