By Aanya Wipulasena
Colombo, Nov 19 (EFE).- The European Union on Thursday urged Sri Lanka to end its import restrictions after Prime Minister Mahinda Rajapaksa vowed to limit buying from abroad and substitute it with local production of goods.
The EU, in a statement, said the current import restrictions were having “a negative impact on Sri Lankan and European businesses, and on Foreign Direct Investment.”
“Trade,” the statement said, “Is not a one-way street.”
The Sri Lankan government forced restrictions on imports to battle the economic impacts of the coronavirus-induced lockdown.
“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. We recall that a prolonged import ban is not in line with World Trade Organisation regulations,” the EU statement said.
The EU, the second-biggest export market for Sri Lanka, said the block is a crucial economic partner for the island nation with a positive trade balance of more than 1 billion euros (about $1.2 billion) in 2018 and 2019.
“Sri Lanka enjoys competitive, predominantly duty- and quota-free access to the EU market.”
Rajapaksa, presenting the budget for 2021 on Tuesday, said imports should be limited by producing goods locally.
He proposed to formulate a “balanced trade-policy” to increase export earnings of the country’s industrial products and save foreign exchange by substituting imports for local production.
Economist WA Wijewardena told EFE that what the EU said in the statement was true since Sri Lanka already had a trade surplus with the bloc that would increase with import controls.
However, he said Sri Lanka was in the downward trend due to the Covid-19 pandemic after the government closed economic activities for about three months from March.
The government ordered the partial closure in October after the second wave of Covid-19 pandemic hit the island.
“We don’t know when that will open and possibly there will be a third wave next year. But during this time, our earnings of foreign exchange have dwindled (and) foreign exchange commitments have remained the same,” the economist said.
Wijewardena said during the next 12 months, Sri Lanka had to service the external debt of both the private and government sector, which is $6.7 billion, while the available liquid foreign exchange in Sri Lankan foreign reserves is only $5.4 billion.
“Either we will have to default or conserve foreign exchange by imposing import controls. This is like a Devil’s alternative. Whatever Sri Lanka does, the EU is going to suffer,” he said.
“If we default the EU investors who have invested in Sri Lankan government and countries that have lent to Sri Lanka will suffer there. When we have import controls still, they will suffer because we will not import goods from them.” EFE