ECONOMYNEXT – Sri Lanka imports 45 percent of wheat, more than half of soybeans, sunflower oil, peas and asbestos are from Russia and Ukraine, which are now in the middle of a war, and mitigation plans may be needed, a Colombo-based think tank said.
Russia and Ukraine are key buyers of Sri Lanka tea and are important sources of tourists.
“Overall, Russia and Ukraine account for 2 percent of Sri Lanka’s imports and 2.2 percent of exports in 2020,” Asanka Wijesinghe, a researcher at Colombo-based Insitute of Policy Studies said in an analysis.
“However, both countries are vital import sources for wheat and export destinations for Sri Lanka’s black tea.”
Russia and Ukraine purchase about 18 percent of fermented black tea exported by Sri Lanka.
About 45 percent of Sri Lanka’s wheat imports came from Russia and Ukraine.
“In addition, more than half of Sri Lanka’s imported soybeans, sunflower oil and seeds, and peas are from Ukraine,” the note said.
“Moreover, Russia and Ukraine are significant import sources for asbestos, semi-finished products of iron and steel, copper(cathodes), and potassium chloride for fertiliser.”
EU, the UK, US and Canada have proposed to cut off several Russian banks from the Swift payment system, which will make it difficult for Russia, in particular, to trade internationally.
Usually, food is exempted from sanctions.
Wijesinghe said rising wheat prices may further push up rice prices.
However, Sri Lanka is now facing forex shortages as the central bank is printing money to keep interest rates down.
As wheat and rice are substitutes, high wheat prices may increase the demand for rice. Thus, it is necessary to remove input shortages like fertiliser to ensure domestic production is adequate.
“Due to the current foreign exchange crisis, Sri Lanka’s ability to effectively face such shocks is constrained,” Wijesinghe said.
“Thus, the urgent priority is to resolve the current foreign exchange crisis to regain the ability to trade swiftly.”
Imports soared to a record 2.2 billion US dollars in December 2021 as the central bank started sterilizing reserves given for imports with new money, a subsidy was given to overseas remittances with printed money and tourism recovered.
Sri Lanka has a dysfunctional pegged exchange rate at 200 to the US dollar with a wide parallel exchange rate and analysts have urged monetary tightening and float to end sterilized intervention and unify the parallel exchange rates.
Sri Lanka is now using reserves for imports, essentially living beyond its means. Sri Lanka last used reserves to extensively intervene at these levels in late 2018. (Colombo/Feb28/2022)