Traders and consumers big or small have to make sacrifices and bear with the new regulation on cash margin for imports to support the economy during the current tough times until certain stability has been restored, Pettah Business Association Secretary Chaminda Vidanagamage told the Sunday Observer Business last week.
“Our Association members understand the needs of the country and are ready to make sacrifices until the economy is back on track,” Vidanagamage said. However, sharing the sentiments of certain merchants, particularly the small and medium sector entrepreneurs in the country, Vidanagamage said the 100 percent cash margin on LCs would hit the SME sector traders importing goods.
“The move would have an impact on prices and it could result in creating a market monopoly enabling large scale businesses to dominate the market with high prices,” Vidanagamage said. The Central Bank Sri Lanka imposed a 100% cash margin when opening letters of credit for 623 items last week. The items range from mobile phones, chocolates, cereal and a variety of clothing.
Former Central Bank Deputy Governor and Commercial Bank Chairman Dham Dheerasinghe said the cash margin regulation is not a ban on imports but rather a move to curtail imports of not so essential goods.
“There will not be a major price high as exaggerated by certain sections. If at all there will be only a marginal increase in prices on the selected items. The importer has to at whatever point pay the margin and it is only on certain items with the HS Code,” Dheerasinghe said. However, he also acknowledged the fact that mobile phones and devices needed for education could affect students who currently rely on such devices today. The 623 items under the Customs codes also include, spaghetti, apple juice, wine, oats, soya milk, dairy goods, lipstick, carpets, coats, anoraks, and electronic goods.
Former State Minister of Finance Ajith Nivard Cabraal and current Central Bank Governor when contacted said the government will look into all the needs of the traders and consumers if a need arises due to the move.
“A scarcity causing price hikes is an exaggeration by the bankrupt Opposition which jacked up prices and interest rates during its tenure. They have no right to talk about a grave need to support the economy,” Cabraal said, adding that there will be no increase in the prices of goods as shown by the Opposition and certain sections of the business community. We will take care of any situation that may emerge.”
He said this is not a new scenario to bring fiscal discipline in the country and added that there had been such drastic measures taken in the past to curtail the outflow of foreign exchange and promote local production. “The interest rates were double than the current rates during the tenure of the past government of which some members try to make a hue and cry when they burden the business community and stifle economic growth with short-sighted policies,” Cabraal said.
However, SME sector traders and consumers have raised concerns of a possible price increase of the items on which the 100 percent cash margin has been imposed. The banking sector regulator decided to impose a 100 percent cash margin deposit against imports of certain non essential and non-urgent goods to support the ongoing efforts to preserve the stability of the exchange rate and foreign currency market liquidity, particularly by discouraging excessive imports of speculative nature. Licensed Commercial Banks are barred from granting advances to customers to enable them to meet the minimum cash margin deposit.