January 03, 2007 (LBO) – Sri Lanka will withdraw from March 31, a controversial cash deposit requirement aimed at limiting imports, which drew censure from the International Monetary Fund as an exchange control measure, a top official said. A 50 percent margin requirement was imposed on a set of goods defined as ‘luxury’ by bureaucrats in October last year, as the Sri Lanka rupee came under heavy pressure from excessive money printing by the Central Bank.
Central Bank Governor Nivard Cabraal said this week in the course of issuing a statement on monetary policy direction for 2007, that the imposition of the 50 percent margin requirement was achieving its ‘desired results’.
“If this trend continues and the desired outcome is achieved, this measure will be withdrawn by 31st March 2007,” Cabraal said.
The International Monetary Fund gave Sri Lanka until November 2007, or the next Article IV consultations – whichever comes earlier – to remove the margin requirement, which it ruled as a violation of Sri Lanka’s obligations under agreements signed with the Fund.
“Sri Lanka maintains requirements that importers of certain goods deposit margin with commercial banks that give rise to an exchange restriction