Import Controls in Sri Lanka: Political Preference and Incentive Distortions

Series: Macro, Trade, & Economic Growth

Battling an unprecedented economic crisis that overlapped the COVID-19 pandemic, Sri Lanka resorted to strict import controls since early 2020. However, the stated policy goal was ambiguous, as policy statements outlined various objectives ranging from minimising foreign exchange leakages to import substitution. Against this backdrop, this publication first analyses the coverage of import controls across various dimensions, i.e.,end-use categories, food and non-food categories and different types of import control. Second, the paper elucidates policymakers’ goals and preferences in designing import controls through a quantitative research approach. The study findings show that crisis-era import controls have created a conducive incentive structure for import substitution.

Thus, the study calls for the gradual phase-out of import controls, expanding the import controls phase-out to final goods, including food and other consumer goods.