Sugath Kulatunga

The opposition has awakened from their slumbers on the recent liberalization of food and fruits and vegetables. Any person who had read the IMF staff papers and the Memorandum of Economic and Financial Policies (MEFP) signed by the President and the Governor Central Bank which sets out the specific plans and policies that Sri Lanka intended to implement under the IMF-supported program.

We are back in 1977 and the floodgates of imports are open. IMF has won the day.

Article 21 of the MEFP the government clearly spells out the specific policies envisaged.

21. We will phase out the administrative measures imposed to support the balance of payments, including those introduced on an emergency basis, once conditions allow. These measures include import restrictions, exchange restrictions, multiple currency practices (MCPs), and capital flow management (CFM) measures.

While the mentioned import restrictions, exchange restrictions, MCPs and CFMs could help mitigate FX shortages in the near term, we believe they should not be a substitute for the comprehensive policy package and ongoing macroeconomic adjustment. We are committed to phasing these measures out as the balance of payments stabilizes. To this end, by June 2023, we will prepare a plan for the phased removal of these measures during the program period, we will not: (i) introduce or intensify exchange restrictions or MCPs;

(ii) impose or intensify import restrictions for balance of payments purposes; The government assurance is confirmed by the IMF Technical Memorandum of Understanding (TMU) where in Other Continuous Performance Criteria it is specified that: During the program period, Sri Lanka will not:

·       Impose or intensify restrictions on the making of payments and transfers for current international transactions;

·       introduce or modify multiple currency practices (MCPs);

·       conclude bilateral payment agreements that are inconsistent with Article VIII of IMF Articles of Agreement;

·       and impose or intensify import restrictions for balance of payments purposes.

It is noted that in the Govt memorandum and in the Performance Criteria imposed by the IMF the restriction is on import controls for ‘balance of payment purposes’. What has happened now is the liberalization of imports of even food and fruits and vegetables which affects the domestic production of these items. These imports would not have any serious impact on the balance of payments and therefore do not fall under the restrictions imposed by the IMF or the self-limitation inflicted on themselves by the government. Therefore, the government should restrict imports which have an adverse effect on local production.

There can be an argument that imports of fruits and vegetables are necessary to ensure the high quality demanded by the tourist industry.

This does not take into account that any high quality particularly vegetables can be produced under greenhouses, and it is already done.