Editor’s Note
This article discusses Sri Lanka’s plans to establish a domestic gold refinery in response to import restrictions. The move, as explained by the National Gem and Jewellery Authority, aims to address supply challenges caused by high border taxes and trade barriers.
ECONOMYNEXT – Sri Lanka is looking to set up a gold refinery on the island, as imports are not taking place due to high border taxes and trade restrictions, said S P Chaminda, Chairman of the National Gem and Jewellery Authority (NGJA).
Sri Lanka freely imported gold until 2018, when money printed by the central bank for flexible inflation targeting and potential output targeting led to foreign exchange shortages. In 2017, Sri Lanka imported $649 million worth of gold.
In 2018, gold import taxes were sharply increased, and the rupee collapsed a few months after gold imports stopped. This currency depreciation was driven by money printing, which fuels credit and overall imports, rather than by one or two isolated items.
Current import and other taxes exceed 45 percent, Chaminda said, with imports being restricted during the last economic crisis. Due to these impractical taxes, gold is now being smuggled into the country.
Discussions are underway about relaxing these taxes, but there are restrictions as Sri Lanka faces economic troubles and is under an International Monetary Fund program, Chaminda added.
The planned refinery is expected to import less refined gold from producing countries like South Africa. Discussions are ongoing on whether the refinery to be established will be a primary or secondary level facility, Chaminda said.
Globally, gold prices have surged, with an ounce trading at around $4,602, amid loose monetary policy from the U.S. Federal Reserve and other major central banks. For context, gold was only $20 per ounce when the Federal Reserve was established in 1916.