Sri Lanka’s export industry is discouraged by the decision taken by the Central Bank of Sri Lanka (CBSL) to suspend interest rates for foreign currency accounts of Exporters proceeds.
During a webinar, hosted by the National Chamber of Exporters of Sri Lanka (NCE), its Vice President Jayantha Karunaratne noted that the decision taken by the CBSL not to pay interests for dollar deposits made by exporters, discourages Sri Lanka’s exports, while, in fact, the country should strive to discourage imports and encourage exports.
He emphasised that stable policy changes or measures that the Government can take would provide a helping hand to the exporters.
Speaking to The Morning Business, Colombo Chamber of Commerce (CCC) President Saranga Wijeyarathne stated that the primary options available to Sri Lanka in tackling its current foreign exchange (forex) crisis includes increasing export revenue and seeking import substitution.
Exporters are already subjected to a mandatory 25% conversion requirement on export proceeds, which the exporters are complying with under protest. If the CBSL is going to impose more restrictions on exporters, how will this facilitate export revenue growth, Wijeyarathne questioned.
If the CBSL’s priority is to attract more dollars to the country, the Exporters should be given concessions and incentives instead of being penalised, stated Wijeyarathne.
Further, he stated: “If the Government continues to penalise the exporter, it might push them to consider alternatives that might exacerbate this situation. For example, they might under-invoice and keep that money separately in a foreign country without repatriating.”
Meanwhile, commenting on this proposed plan to remove interest rates on foreign currency accounts of exporters, Development Interplan Ceylon (Pvt.) Ltd. Chief Executive Officer (CEO) Zuraish Hashim told The Morning Business that exporters need to keep a part of their export proceeds in dollars to finance trading activities such as freight payments and raw material inputs.
“In certain markets, our freight component amounts to nearly 40% of our cost of sales. Therefore, if we convert everything we have, we will suffer a significant exchange rate loss in such trading activities, affecting our competitiveness,” he stated, adding: “And by taking away the interest component of 5% on our foreign currency deposits, this shall also amount to an additional loss to exporters, affecting competitiveness.”
Sharing his thoughts on the matter, Shippers’ Academy International Founder and CEO Rohan Masakorala stated: “I would argue that this is the last thing the Government should do at this juncture. By inferring and harming their interests, the Government is going to discourage exporters and foreign investors, and the country will pay a heavy price.”
According to him, the Government should discuss with all stakeholders on how to implement this Six-Month Policy Road Map, and he added that a forceful mechanism will not be conducive for the country’s long-term interests.
Masakorala further noted that most exporters are currently in a precarious position due to the current state of global supply chains, which has caused unpredictable delays.
Therefore, if the CBSL engages in such short-sighted policy formulation and decides that the forceful conversion of the foreign currency deposits of exporters is the answer to the current forex crisis, Masakorala believes “it will adversely affect Sri Lanka’s export basket and its growth, and may lead to entrepreneurship in the exports sector to move on to other sectors”.
Further, the NCE noted that the exporters were disheartened by the allegations that were made by the CBSL regarding exporters hoarding foriegn currency obstructing conversion, as the exporters had to survive along with industry-driven uncertainties, such as syrocketing freight charges as well as a limited number of shipping containers.
Under the “Repatriation of Export Proceeds into Sri Lanka Rules” issued by the Monetary Board of the CBSL, exporters are to repatriate export proceeds within 180 days from the date of shipment and shall convert not less than 25% of such export proceeds into Sri Lankan rupees within 30 days of the receipt of such export proceeds into Sri Lanka.
On 27 September, the CBSL issued a statement, requesting the exporters to repatriate their export proceeds while implying their failure to oblige with the CBSL export proceeds requirements, and stated that strict requirements would be imposed in order to ensure complete repatriation of export proceeds within a period of time as a monthly average of $ 345 million of export proceeds has not been repatriated.