{"id":156723,"date":"2026-06-10T15:27:28","date_gmt":"2026-06-10T22:27:28","guid":{"rendered":"https:\/\/www.lankaweb.com\/news\/items\/?p=156723"},"modified":"2026-06-10T15:27:28","modified_gmt":"2026-06-10T22:27:28","slug":"plugging-the-foreign-exchange-leak-can-sri-lanka-protect-its-reserves-without-closing-the-economy","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2026\/06\/10\/plugging-the-foreign-exchange-leak-can-sri-lanka-protect-its-reserves-without-closing-the-economy\/","title":{"rendered":"Plugging the Foreign Exchange Leak: Can Sri Lanka Protect Its Reserves Without Closing the Economy?\u201d"},"content":{"rendered":"

Dr Sarath Obeysekera<\/em><\/span><\/h2>\n\n\n

Many economists in Sri Lanka have debated for years. In an open economy, foreign exchange can leave the country not only through legitimate imports but also through over-invoicing, transfer pricing, unnecessary imports, and disguised capital flight<\/strong>.<\/p>\n\n\n\n

However, the challenge is to control outflows without discouraging genuine business activity.<\/p>\n\n\n\n

Some possible measures are:<\/p>\n\n\n\n

1. Strengthen Customs Valuation<\/h3>\n\n\n\n

Many countries use international reference databases to compare declared import prices with prevailing world prices.<\/p>\n\n\n\n

If a container of low-value consumer goods is declared at twice the normal international price, Customs should automatically flag it for investigation.<\/p>\n\n\n\n

2. Joint Monitoring by Central Bank, Customs and Inland Revenue<\/h3>\n\n\n\n

Import payments above a threshold (say USD 50,000) could be cross-checked against:<\/p>\n\n\n\n

    \n
  • Customs declaration value<\/li>\n\n\n\n
  • Bank telegraphic transfer value<\/li>\n\n\n\n
  • Supplier invoices<\/li>\n\n\n\n
  • Tax records of the importer<\/li>\n<\/ul>\n\n\n\n

    Any major discrepancy should trigger an audit.<\/p>\n\n\n\n

    3. Prioritise Essential Imports<\/h3>\n\n\n\n

    During foreign exchange shortages, countries often classify imports into:<\/p>\n\n\n\n

      \n
    • Essential (fuel, medicine, food, industrial raw materials)<\/li>\n\n\n\n
    • Productive (machinery, export-related inputs)<\/li>\n\n\n\n
    • Non-essential (luxury and easily substitutable goods)<\/li>\n<\/ul>\n\n\n\n

      Higher duties or temporary restrictions can be imposed on non-essential imports.<\/p>\n\n\n\n

      4. Country-of-Origin Verification<\/h3>\n\n\n\n

      Some low-cost products are imported through intermediary trading companies in third countries, increasing invoice values.<\/p>\n\n\n\n

      Direct sourcing verification could reduce artificial markups.<\/p>\n\n\n\n

      5. Digital Trade Monitoring<\/h3>\n\n\n\n

      A modern system linking:<\/p>\n\n\n\n

        \n
      • Customs<\/li>\n\n\n\n
      • Ports<\/li>\n\n\n\n
      • Banks<\/li>\n\n\n\n
      • Inland Revenue<\/li>\n\n\n\n
      • Import and Export Control Department<\/li>\n<\/ul>\n\n\n\n

        would make it difficult to over-invoice imports and transfer money abroad under the guise of trade.<\/p>\n\n\n\n

        6. Encourage Domestic Manufacturing<\/h3>\n\n\n\n

        Rather than banning imports, Sri Lanka should encourage local production of:<\/p>\n\n\n\n

          \n
        • Building materials<\/li>\n\n\n\n
        • Household items<\/li>\n\n\n\n
        • Agricultural equipment<\/li>\n\n\n\n
        • Marine equipment<\/li>\n\n\n\n
        • Consumer goods<\/li>\n<\/ul>\n\n\n\n

          Every locally produced item saves foreign exchange and creates jobs.<\/p>\n\n\n\n

          7. Address Transfer Pricing<\/h3>\n\n\n\n

          Multinational companies sometimes shift profits abroad through management fees, royalties, and inflated service charges. Strong transfer-pricing regulations can reduce this leakage.<\/p>\n\n\n\n

          The Balance Required<\/h3>\n\n\n\n

          Sri Lanka\u2019s economy depends on exports, tourism, remittances, and foreign investment. Excessive controls can create black markets and discourage investment. Therefore, the objective should be smart monitoring and risk-based controls<\/strong>, not a return to the rigid import licensing regimes of the 1970s.<\/p>\n\n\n\n

          Regards

          Dr Sarath Obeysekera<\/p>\n\n\n\n

          <\/p>\n","protected":false},"excerpt":{"rendered":"

          Dr Sarath Obeysekera Many economists in Sri Lanka have debated for years. In an open economy, foreign exchange can leave the country not only through legitimate imports but also through over-invoicing, transfer pricing, unnecessary imports, and disguised capital flight. However, the challenge is to control outflows without discouraging genuine business activity. Some possible measures are: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[],"class_list":["post-156723","post","type-post","status-publish","format-standard","hentry","category-economy"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/156723","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=156723"}],"version-history":[{"count":1,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/156723\/revisions"}],"predecessor-version":[{"id":156724,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/156723\/revisions\/156724"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=156723"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=156723"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=156723"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}