CB relaxes import controls, mandatory conversion of export proceeds
The Central Bank ( CB) on Friday relaxed retrograde import controls, enforced last month, but introduced mandatory export proceeds conversion to ensure ‘errant’ exporters bring back their dollars instead of parking it in overseas accounts.
“We will strengthen mandatory conversion of export proceeds and request the government to tax profits of exporters at 28 percent instead of 14 percent where the foreign exchange is not repatriated and converted,” Nivard Cabraal, the new CB governor now in his third term, said presenting ‘The Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability’. The Business Times on September 19 exclusively reported moves to introduce mandatory conversions of foreign earnings.
Some big-time exporters welcomed the move saying it is a good thing that the CB plans to do this which will stop exporters from saving in US dollars and borrowing in rupees. “If this is not done, there will be no end to this crisis,” a prominent exporter told the Business Times on Friday.
Other exporters were hesitant to comment while a few exporters needed time to study the directives.
The money markets on Friday didn’t respond immediately to the change with dealers saying it remains to be seen how the market would react on Monday to two key areas – removal of the 100 percent cash margin on 600+ import items and mandatory conversion of export earnings.
The regulator is looking at a six-month window to immediately stabilise the foreign exchange crisis.
Mr. Cabraal said cash margin deposit requirements on non- essential/ non- urgent imports will be discontinued immediately.
The CB will monitor services related to foreign exchange inflows and ensure due repatriation and conversion, he added. This will be done through the presidential task force and a target to increase exports to more than US$ 1 billion per month for the rest of the year is identified, he said.
Establishing the International Transactions Reporting System to monitor foreign exchange transactions will start next January.
The CB will consider the possibility of buying back the entire issue of International Sovereign Bonds ( ISBs) maturing in January next year and or in July of that year if high discounts are prevalent in the market. Replacing maturing ISBs with government- to- government loans until ISBs/ GDP ratio declines to 10 per cent or less is on the cards. “We have had high- level discussions to secure short to medium term funding; the short-term target is $ 1 billion which is within three months,” Mr. Cabraal said. The CB will replace maturing debt obligations with new inflows through non- debt sources wherever possible, he added.
In another bold move – given depleted foreign exchange resources-, the CB aims to intervene in the forex market by providing the funds to finance the country's energy bills, a move economists said would ensure a regular supply of fuel.
The regulator also plans to promote investments in rupee- denominated and Government securities with a guarantee on the exchange rate. CB will stop parate executions and end reposition of vehicles in the next six months for pandemic affected borrowers, Mr. Cabraal said.
By January next year, the CB will lift the ceiling imposed on outward investment and migration allowances. With immediate effect education and health-related, foreign exchange outflows will be allowed.
Taking measures to improve sovereign ratings and strengthening worker remittances through official channels were also mentioned. “We urge that remittances into the country be forwarded through official channels and the banking sector will facilitate these inward remittances with easy and new technology,” Mr. Cabraal added amidst reports that Sri Lankan migrant workers were using unofficial channels to send money to their homes here as they get a better dollar rate.
Within the next six months, the CB will support the non-financial sector consolidation and examine if the six different financial companies can be revived. The CB will also help stateowned enterprises (SOEs) to diversify their borrowing sources. Mr. Cabraal noted that it is important for SOEs to borrow from private commercial banks as well.