IPS Publication Release and Discussion on ‘Import Controls in Sri Lanka: Political Preference and Incentive Distortions’

11 July 2023

The Institute of Policy Studies of Sri Lanka (IPS) organised a publication launch and discussion event to address concerns regarding Sri Lanka’s implementation of stringent import control measures during the economic crisis. The publication, titled “Import Controls in Sri Lanka: Political Preference and Incentive Distortions,” authored by IPS researchers Dr Asanka Wijesinghe, Chathurrdhika Yogaraja, and Nilupulee Rathnayake, offers an in-depth analysis of Sri Lanka’s import control policies during the economic crisis and shed light on the intentions behind them.

Presenting the study findings, Dr Asanka Wijesinghe highlighted that the research identified eight waves of import controls implemented in Sri Lanka, spanning from April 2020 to September 2022, through measures such as temporary suspensions, bans, import control licenses, and credit-based requirements. These controls significantly impacted various import categories, including consumption goods (46%), intermediate goods (31%), and capital goods (24%). Notably, only 9.8% of imported food items were exempted from import controls.

While the Sri Lankan government aimed to reduce foreign exchange leakages on “non-essential” imports through these measures, the study revealed that a considerable portion of imports consisted of essential goods such as raw materials, food, and medicine. This raised questions about whether import substitution was a motivating factor behind these policies.

The study found that the structure of import controls may have inadvertently incentivised import substitution. While some export-oriented industries experienced minimal trade restrictions, the manufacturing of food and beverages faced significant import barriers. This emphasis on promoting domestic agricultural production had implications for the availability of certain food products in the market.

Dr Wijesinghe stressed the importance of recent deletions from the import control list, indicating policymakers’ intention to phase out import controls on consumption goods. He noted that this positive step should be further expanded, with a particular focus on food and feed items. Balancing the protection of domestic industries and ensuring the availability of essential goods will be critical during the crucial phase of phasing out import controls.

The ensuing discussion involved various stakeholders, including representatives from academia, think tanks, government ministries, institutions, and organisations. The participants deliberated on the implications of import controls and emphasised the need for clear policy goals. The discussion underscored the importance of considering broader economic impacts, such as foreign reserves, the export sector, and the food security context in Sri Lanka.

Get your copy of “Import Controls in Sri Lanka: Political Preference and Incentive Distortions” here.

Read the related blog ‘Has Sri Lanka’s Crisis-driven Import Controls Incentivised Import Substitution?’ here.

Import Controls in Sri Lanka
Import Controls in Sri Lanka
Import Controls in Sri Lanka
Import Controls in Sri Lanka
Import Controls in Sri Lanka
Import Controls in Sri Lanka: Political Preference and Incentive Distortions
Import Controls in Sri Lanka: Political Preference and Incentive Distortions
Import Controls in Sri Lanka: Political Preference and Incentive Distortions
Import Controls in Sri Lanka: Political Preference and Incentive Distortions