Despite the global pandemic, the sharp incline of imports in Sri Lanka implies an opportunity to fiddle while Rome burns for few powerful segments in the country which is tolerating a strong 30% growth in the first half of this year and it crossed the $ 10 billion mark. If we analyze the composition of imports during the half of year and over the years back we will realize that imports peaked at an unusually high figure of USD 1.92 billion in March, making it the highest monthly import value since March 2018.
According to CBSL sources, expenditure on merchandise imports increased by 32.2 percent to US dollars 1,710 million compared to US dollars 1,294 million recorded in July 2020. The increase in import expenditure was observed across all main categories of imports such as consumer goods, intermediate goods and investment goods, despite some import controls still being in place. On a cumulative basis, total import expenditure from January to July 2021 amounted to US dollars 11,725 million, compared to US dollars 8,968 million recorded in the corresponding period in 2020.
In the first half, total expenditure on the importation of consumer goods rose by 7.3% to $ 1.9 billion and importation of intermediate goods jumped by 43% to $ 5.95 billion, while importation of investment goods rose by 25% to $ 2.14 billion. The Central Bank estimated that imports in 2021 would grow by only 10.5% to $ 17.8 billion and the end-June figure amounts to over 60% of 2020 full year imports.
Owing to the pandemic, medical and pharmaceuticals imports were up 19.5% to $ 328 million. However, in the first half, other notable increases under the consumer goods category were sugar and confectionery by 77%, telecommunication devices by 103% , other food and beverages by 80% , and home appliances by 68% .
Expenditure on food and beverages increased by 61.9% with a broad-based increase in all categories, except seafood. However, the largest contribution to the increase in total food bill was from dairy products (mainly milk powder, but also cheese and butter), and oils and fats (mainly coconut oil, but also other types of oil).
In a vertically integrated manufacturing process, restricted input supply would affect domestic manufacturing adversely. Further, due to the increased prices of intermediate goods domestically, domestic producers in Sri Lanka would experience increased production costs, ultimately affecting competitiveness.
The other crucial factor is the current import restrictions are having a negative impact on Sri Lankan and European businesses and on Foreign Direct Investment. Such measures impair Sri Lanka’s efforts to become a regional hub and negatively impact Sri Lankan exports by constraining the import of raw material and machinery. A prolonged import restriction is questionable as same is not in line with World Trade Organization regulations.
Commercial banks have an utmost duty to contribute to the Government’s efforts to galvanise the economy.
In this exercise commercial banks have a pivotal role in identifying priority sectors for import financing aligned with Government policy. Further as mid and long term strategy banks can focus on strengthening import substitution industries.
The writer is Senior Deputy General Manager, Corporate and Offshore Banking, Bank of Ceylon.