Motor traders relieved by removal of margin deposit requirement
Sri Lanka motor traders, battered by increasing import duty on vehicles, spare parts and tightening of depreciation allowance on used car imports, heaved a sigh of relief after it was announced that the 100 per cent margin deposit requirement against the Letters of Credit opened with the commercial banks would be removed.
The announcement by the Central Bank (CB) said the ruling is with immediate effect on Thursday.
Since the improvement in the trade balance, the Monetary Board decided to remove this margin deposit requirement, CB Governor Ajith Nivard Cabraal said when he presented in Colombo the CB’s road map, monetary and financial sector policies for 2014 and beyond.
With currencies of several trading partner economies depreciating sharply against the Sri Lankan rupee in mid 2013, the CB had imposed this requirement, he said, adding that the trade deficit was expected to improve to12.8 per cent of GDP in 2013 and to 11.6 percent in 2014.
There was no need to continue the100 per cent LC margin as the CB has taken structured measures to promote exports and increased inflows from worker’s remittances, tourism and service exports will mitigate the impact of trade deficit, Mr. Cabraal told the Business Times. Welcoming the move, Tilak Gunasekera, President of Ceylon Motor Traders’ Association (CMTA), who is also the CEO and Executive Director of Sathosa Motors Plc, said his association had made repeated requests to the Treasury and the CB to remove this requirement as it was exerting an adverse impact on the vehicle import industry that has been hit by fluctuating duty for the past several years.
The small players were the most affected as they have to pay upfront the value of the vehicle which was a huge burden to them, he said, adding that now one of their major problems has been settled.
The Government imposed a 100 per cent margin deposit on opening a LC to import cars, trucks and vans over concerns that the weak Indian rupee and Japanese Yen could result in higher imports of vehicles.
Treasury officials anticipated an excessive outflow of capital from Sri Lanka due to the increasing value of the US dollar.
However the CB Governor said that the maintenance of foreign reserves at desirable levels will enable the CB to prudently manage market dynamics and any impending risks.