Sri Lanka in dilemma over import restrictions removal – Economics don

The government has taken a number of steps to pass the International Monetary Fund (IMF)’s first review of its loan, Prof. Priyanga Dunusinghe, Department of Economics at the Colombo University says.

“The IMF made several recommendations. One of them is increasing the tax revenue of the government. It also wanted the government to make the Central Bank independent and ensure that the state-owned enterprises adhere to cost reflective pricing. The IMF also wanted a strong safety net. Some progress has been made on these fronts,” he said.

Prof. Dunusinghe said the government had already faced tough resistance to those moves.

“Not all goals set by the IMF have been met, but it’s obvious that the government is serious about meeting the targets,” he said.

Prof. Dunusinghe added that Sri Lankans must be proud that the government had repaid the loan taken from Bangladesh in 2022.

However, the decision to remove all import restrictions, apart from those on private vehicles, from October might be premature, he said. There are still restrictions on importing over 600 items, he said.

“We must do a thorough study first to see if we are in a position to do so. I know there is a lot of pressure on the government to lift import restrictions. There is a lot of pressure from the EU. They have opened their markets to us through GSP+, but we have closed our doors to their goods. The IMF is also not a big fan of import restrictions. I personally don’t think we are ready to let go of import restrictions so early,” he said.

“However, we can’t keep import restrictions going on for a long time as well. Sri Lankan products too are being sold to other countries and we need to show reciprocity,” he said.

“Some businesses might import large quantities of items to buffer up stocks. The government must ensure that the rupee is not greatly depreciated. We can control the import of goods through tariffs. We have signed agreements with the World Trade Organization (WTO) that we won’t go beyond certain tariff thresholds. However, there is room for us to operate. We can get rid of import bans, but we can still discourage imports,” he said.

Prof. Dunusinghe also said that politicisation of key institutions was a serious problem for the country as those with political affiliations were not keen on delivering bad news to their political masters.

“Sri Lanka is also talking about giving tax concessions to attract investors. We have tried this since 1977, without much success. We have not addressed what really deters investors, such as policy inconsistencies, corruption, and lack of infrastructure. We just give tax concessions, which are often used by crooks,” he said.