Sri Lanka trade controls take IMF by surprise

Apr 04, 2012 (LBO) – Sri Lanka’s sudden hike in car taxes has taken the International Monetary Fund by surprise, and the lender would like to see tighter monetary policy than selective taxes, its resident representative said. “The issue of recent taxes on vehicles and other goods, that actually is something we did not discuss with the authorities at all,” IMF’s resident representative Koshy Mathai said.

“We were not expecting it. We were happy to see that it shows that they are taking this balance of payments crisis issue very seriously. They are trying many different policies in order to address the issue.

“Our own view is probably that adjusting tax rates is not always the most productive way of addressing this kind of problem.

“Because, yes, it certainly true that the rise in vehicle imports was part of the widening of the current account of deficit last year.

“But whether it is appropriate to do selective tax increases to combat it – rather than more generalized instruments that are less discriminatory and apply more across the board – whether that is the more appropriate approach is something we had some concerns about.”

Monetary Problem

Pressure on a currency peg comes from excess