A sharp increase in gold imports to Sri Lanka in 2017, resulting in a net foreign exchange outflow of more than half a billion US dollars, is attributed by highly placed Central Bank officials, to a decision taken “about one and half years ago” to reduce import tariffs on gold that acted as a barrier against it being smuggled out to India.
According to figures made available to Sunday Observer, Sri Lanka imported gold bullion worth US$ 650 million in 2017 with gold worth US$ 245 million coming from United Arab Emirates, US$ 229 million from Singapore and US$ 176 million from Switzerland.
These imports pushed up gold to the second largest import after Petroleum (US$ 2.09 billion) taking three percent of all imports last year.
While not considering the price fluctuation of gold, the gold imported in 2017 is more than 15 times the amount of gold imported in 2015 (US$ 41.4 million), immediately after tariffs were reduced and 56 times more than 2014 (US$11.6 million), when tariffs were in place.
“This increase of imports of gold is not reflected in exports,” a senior Central Bank official told Sunday Observer on condition of anonymity, stating that the rationale for taking away the tariff was that investors from Singapore and Dubai would relocate here and manufacture jewellery or gold products. “That didn’t happen. There is no increase in gold exports,” the official said.
In 2017, Sri Lanka exported gold worth US$19.5 million, including items manufactured from gold, and in semi-manufactured form. This is comparative to a figure of US$16 million exported in 2015.
“What in fact was happening was that people were importing gold into Sri Lanka on a duty-free basis and then smuggling it to India, because India has a much higher tariff,” the official said, stating that last month´s 15 percent tariff increase was an attempt to equalise the tariff differences between Sri Lanka and India. “There is now no incentive to import it here and then smuggle it into India,” he said.
The total foreign exchange loss due to gold being smuggled out is estimated around US$ 600 million, taking into consideration a figure of approximately US$ 30 million as local gold consumption and approximately US$ 20 million as re-export through jewellery and other items.
According to the Central Bank official, even the local consumption figure is on the high side. “The gem and jewellery Association says that they sell it to tourists locally. But then production should go up, which is not the case.” Officials indicated that the tariff reduction in 2015 came on a recommendation of the Export Development Board.
The import figures for 2017 has also highlighted the level of consumerism in Sri Lanka with the eighth highest import, worth US$ 479 million being telephony equipment, including handsets. Sixteen aircraft worth US$ 325 million had also been imported last year.