Banks are refusing letters of credit (L/Cs) for importers in Sri Lanka as the country struggles with a severe shortage of US dollars in the foreign exchange market.

Foreign exchange reserves are currently hovering around US$4 billion compared with around US$7 billion a year ago.

Central bank order

The Central Bank of Sri Lanka (CBSL) has ordered banks not to request US dollars from depleted official foreign currency reserves, and instead find hard currency in the cash short market.

The CBSL order means several private banks are unable to provide L/Cs to importers even for essential items such as pharmaceutical products and foodstuffs.

Banks refusing L/Cs

"Sri Lanka['s] importers have been badly hit by a foreign currency scarcity as the banks are now refusing to open L/Cs, even for the importation of essential commodities," president of the sugar importers association, P M Abeysekera, told the country's Sunday Times newspaper.

He said banks are refusing requests to open L/Cs, even those endorsed by the central bank.

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