The Central Bank of Sri Lanka (CBSL) has withdrawn with immediate effect a cash margin requirement on import letters of credit (L/Cs) imposed over the previous 12 months.

The bank first imposed a 100 per cent cash margin in May 2022 and February 2023 to limit imports as the island nation faced a chronic foreign exchange shortage and its currency collapsed.

IMF conditions

The withdrawal of the cash margin requirement on import L/Cs is a condition of a US$3 billion International Monetary Fund (IMF) support package approved in March.

Sri Lanka has to end all trade and exchange restrictions imposed as domestic responses to the country's economic crisis.

Deeper L/C woes

Even before the cash margin requirements were imposed, most of Sri Lanka's banks had lost the ability to honour most L/Cs by mid-2021.

Banks in India remained open for L/C business for some time after that, but credit became harder to come by for Indian exporters selling goods to Sri Lanka (DC World News, 12 January 2022).

Other solutions

Some banks and traders in Sri Lanka have already found their own solutions to the lack of US dollar-denominated L/Cs.

Standard Chartered Sri Lanka said earlier this month that it has completed its first Indian rupee transaction for a multinational corporate client in the form of an outward telegraphic transfer between Sri Lanka and the bank's office in Mumbai, India. The bank says it is now ready to handle L/Cs in the Indian currency, (DC World News, 2 May 2023).

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