By Hiran H.Senewiratne Courtesy The Island

The government has imposed taxes on gold and vehicle imports to manage the country’s fiscal position, which has already resulted in some relief for the economy, Central Bank Governor Dr. Indrajit Coomaraswamy said.

“At present with the new tax imposition, gold imports have come down to manageable levels, while vehicle imports, which account for more than 50 percent of the non petroleum import bill, will also contain with the new tax imposition on 1000 CC and below capacity vehicles, Dr Coomaraswamy told the media at the monthly monetary policy meeting. The event was held at the Central Bank auditorium yesterday.

He said that in the first five months of 2017, Sri Lanka imported US $ 26 million worth of 1000 CC vehicles into the country while in the first five months of 2018, it moved up US$195 million, which is a 1000 percent increase.

Dr. Coomaraswamy

‘During the last few years, 1000 CC vehicle imports have gone up in an unimaginable manner, which has a big fiscal pressure on the economy. Due to that the government imposed taxes on such vehicles, he said.

Dr Coomaraswamy said that the economy is beyond control on the fuel import bill, which is also increasing at a rapid pace.

The Governor also said that there would be a gradual pickup in domestic economic growth from the second quarter of 2018 and inflation is expected to remain in mid-single digits in spite of the recent uptick.

“The economy is projected to reach its potential over the medium term, benefiting from a competitive flexible exchange rate, a low inflation environment and a stronger policy framework to support exports and investment, amid continued fiscal consolidation, the Governor said.

He added: ‘Although inflation is projected to remain at the higher end of the inflation target of 4 – 6 per cent in August as well, the onset of the harvest towards the end of the third quarter of 2018 is expected to lower inflation thereafter.

‘The gross official reserve position was estimated at US dollars 8.4 billion at end July 2018 compared to US dollars 8.0 billion recorded at end 2017.

‘So far during the year, the Sri Lankan rupee has depreciated against the US dollar by 4.2 percent.

‘The continuation of the current monetary stance is appropriate at this juncture.

‘Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) remain at 7.25 percent and 8.50 percent, respectively, while the Statutory Reserve Ratio remains at 7.50 percent.’

Dr. Coomaraswamy said that after considering the current and expected domestic and global economic developments, the Monetary Board has decided to keep rates unchanged in keeping with its aim to stabilize inflation at mid-single digit levels in the medium term, thereby contributing to a favorable growth outlook for the Sri Lankan economy.

‘Both national and Colombo inflation remained at low single digit levels, in spite of the transient acceleration, mainly arising from the upward revisions to prices of domestic petroleum products and other administratively determined prices, he added.