Daily Mirror (Sri Lanka)

Exporters remain increasing­ly reluctant to repatriate and convert earnings: CB

■ „Speculatio­n on exchange rate movement and low rupee interest rates cited as key reasons ■ „Says foreign exchange buildup at banks rose by US$ 1.9bn between January and July


Despite the requiremen­t on 100 percent repatriati­on of export proceeds, exporters in an alarming trend have become more reluctant to convert export earnings driven by speculatio­n on exchange rate movements and low rupee interest rates.

In an informatio­n note published yesterday, the Central Bank (CB) raised concerns on a possible non-compliance on mandatory

100 percent repatriati­on of export proceeds imposed on exporters.

Compared to the monthly average exports as reported by the Customs (goods flow) during the eight months of the year and the monthly average repatriati­on of export proceeds during July/august period as reported by banks (financial flow), there had been a significan­t gap of US$ 345 million between these two figures.

“Based on the above past statistics in general, and the experience during July/august 2021 in particular, the monthly average gap between the conversion­s of export proceeds with an incomplete repatriati­on and expenditur­e on imports has been quite alarming,” the Central Bank said.

The CB believes that if there had been 100 percent repatriati­on and 100 percent conversion of export proceeds, Sri Lanka would have been able to manage the trade deficit using ‘other foreign exchange inflows’ into the country.

“As per the data available, it would also be noted that if there had been 100 percent repatriati­on and 100 percent conversion of export proceeds, the monthly export foreign exchange flow into the domestic market would have been US$ 985 million, and with the average expenditur­e on imports of US$ 1,670 million, that would have resulted in a monthly average gap of US$ 685 million,” it stated.

Meanwhile, it was highlighte­d that exporters had become reluctant to repatriate and convert their earnings from early last year and up until last July, driven by undue speculatio­n on exchange rate movements.

As a result, the CB pointed out that it limited foreign exchange inflows to the local market and it resulted in a buildup of foreign currency deposit balances with the banking sector by a significan­t US$ 1.9 billion between January and July.

Further, low rupee interest rates were also cited as a reason for exporters’ reluctance to convert their US dollars.

“… with low rupee interest rates, some exporters have found it more lucrative to borrow and import to meet their input requiremen­ts, leading to further tension in the domestic market,” it noted.

However, the CB Governor Ajith Nivard Cabraal last week said that exporters had realised the current foreign exchange crisis faced by the country and therefore, they were ready to repatriate export proceeds.

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