Sri Lanka's central bank has imposed a requirement that importers of certain goods must buy on letter of credit (L/C) terms.

This is one of several measures taken by the bank in its endeavours to stabilise the country's volatile currency and curb inflation.

Forex pressure

To reduce the pressure on dwindling foreign exchange reserves amid a surge of imports of non-essential items, the Central Bank of Sri Lanka (CBSL) has imposed a requirement that imports of perfume, deodorants, footwear, tyres and air conditioners amongst other goods must be purchased on L/C terms.

The CBSL has issued a directive to reinforce the requirement by ordering authorised dealers in foreign exchange, most of which are banks, not to release foreign exchange for rupees for the import of non-essential consumer goods on cash-in-advance terms.

Undermining liberalisationThe directive has told banks to make customers aware of the directive, which applies indefinitely until further notice.

While CBSL's import controls are intended to stabilise the rupee, they contradict and undermine the government's trade liberalisation strategy.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.