Soaring inflation, exchange rate make value added exports profitless

Sri Lanka’s mounting inflation paired with an artificially restricted exchange rate have put value added exports on the back foot amid rising fears that these will become unprofitable in less than six months, officials in the industry said.

The Sri Lanka rupee is now at an artificial price of 203 against the US dollar. With all goods and services rising in price according to the black market exchange rate exporters say their input costs have exponentially augmented. “Many imports are coming through the grey market and priced at an exchange rate of Rs. 260 per US dollar range. Inflation has risen so much that it is reflected in the prices of all the goods and services. The exchange rate is the only static element right now which makes it impossible for us to be competitive in the international marketplace,” a value added exporter told the Business Times on Thursday.

So far, the companies have managed to continue an uninterrupted supply of their goods to the respective export markets but the next two to three months are crucial in terms of sourcing their raw materials for a better price while being able to sustain the supply is what exporters say.

With this huge disparity in the exchange rate certain exports may not be economical any longer, a banker said.

But exporters with value additions sourced from within the country or inputs sourced from within the country are not complaining. Since 2021 the US dollar has appreciated up to 25 per cent to Rs. 203 from Rs. 178 at the time, one such exporter pointed out. “Given the current situation, this appreciation is conducive. If the exchange rate is further increased all other essential goods and services will also have to be increased which will burden the general population even more. Bringing in dollar- earning projects to the country within the next four to five months will give a boost to the local rupees,” he said.

Another such exporter said the government should promote the recently introduced residency programme under the Sri Lanka Golden Paradise Programme to bring in foreign nationals into the country and attract US dollars. “The priority right now should be to bring businesses that earned dollars. As usual, it's an urgent matter of securing the right policies,” he said.