Central Bank Governor Dr. Nandalal Weerasinghe said the Finance Ministry will publish a gazette shortly to ban open account imports that spurs demand for unofficial channels such as Hawala and Undial systems and promote transactions through the formal banking sector under the Import Export Control Act.
The regulator hopes that after the ban comes into effect the demand for informal channels will wane and transactions would be done through the formal channels.
The country lost a large amount of foreign exchange due to the black market transactions that flourished for over a year.
It is estimated that around 25 percent of the close to two billion dollars of the country are on open account while around 12 percent are on documents against payment/documents against acceptance (DA/DP).
On the IMF program the governor expressed optimism of a staff level agreement that would be reached between Sri Lanka and the IMF and a program to be in place to support the country’s balance of payment within the next three months.
“I am confident we could reach an agreement with the IMF get on with the supported program within a round three months which thereafter would infuse some stability to the economy,” Dr. Weerasinghe said.
According to the CB chief, the first round of discussions with the global lender on the sidelines of the IMF spring meetings in Washington last week had been satisfactory.
“We are pleased with the outcome of the first discussion with the IMF senior staff in Washington where the IMF assured its support to help Sri Lanka,” the Central Bank governor said.
However, the international lender said recently that Sri Lanka faces “solvency” issues because of risks stemming from unsustainable debt levels that jeopardise the nation’s economy.
A summary of the report released earlier in the month said Sri Lanka faced unsustainable debt levels and needed a “credible and coherent” strategy to restore stability.
It stressed that an approval of an IMF-supported program for Sri Lanka would need adequate assurances that debt sustainability will be restored.
“Based on staff analysis, the fiscal consolidation necessary to bring debt down to safe levels would require excessive adjustment over the coming years, pointing to a clear solvency problem,” the IMF said in its Article IV consultation report, released last month in Washington.
Sri Lanka will arrive at an agreement for an Extended Fund Facility program as it did in 2009 to support the country get over the balance of payment crisis.
On the discussion with creditors the governor said the IMF will commence its program following the progress with the discussion with creditors.
The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors at its meeting in Washington.