CB imposes restrictions on vehicle imports to curb galloping dollar

Sri Lanka’s motor trade is expected to shrink further due to the impact of introducing upfront payment for letters of credit (LCs) and tax hike, depreciation of the rupee and the restriction on vehicle leases, former chairman of the Ceylon Motor Traders Association Tilak Gunasekera told the Sunday Times Online.   

The Central Bank announced a new directive earlier on Wednesday in the opening of LCs in commercial banks for vehicle importers making compulsory an upfront payment initially without giving a grace period, pushing importers from the frying pan into the fire. The move is connected to a galloping US dollar which traded at over Rs.165 in the market today and aimed at reducing demand from non-essential imports.

Normally vehicle importers get four months credit from foreign automobile manufacturing companies to settle their payments and what they used to do is to settle money they owe to banks after selling vehicles imported by them.
But under the present directive motor traders will have to pay up front when opening LCs as the government has imposed the 100 per cent margin deposit requirement as the rupee came under pressure in forex markets.
Accordingly, LCs for the importation of these vehicle categories could be done only with a minimum cash margin of 100 per cent. The decision to impose the margin deposit requirement is based on recent developments which, if not addressed, could threaten macroeconomic stability, the Central Bank said in a statement today.   

The imposition of the margin deposit requirement, together with the measures already taken by the government with regard to taxes applicable on motor vehicle imports, is expected to curb non-essential imports of motor vehicles, and ease undue pressure on the current account of the balance of payments (BOP) and the exchange rate. (Bandula)