Worse-than-ever forex crunch killing businesses, industries
Sri Lanka’s foreign currency crunch in the country is worse than before despite the depreciation in the rupee, further affecting businesses amidst the threat of wiping out industries.
Banks are not opening letters of credit (LC) with importers and businesses in need of raw materials are struggling daily, industry officials say.
LCs opening has gotten from bad to worse, an importer said noting that there's no end in sight for this issue.
On Wednesday, the Bank of
Ceylon ( BoC) had suspended telegraphic transfers as they didn't have any US dollars to execute transactions, a senior BoC official told the Business Times. The gray market for US dollar is trading at Rs. 350 to 390 rates. There are virtually no inward remittances owing to this disparity, this official as well as several other bankers said. They said the 50 per cent export earnings surrender stipulated by the Central Bank is also posing a challenge to shore up forex reserves.
"There's no confidence in the system and migrant workers aren't sending their hard-earned money through the banking system," a senior banker added. The same status quo prior to the currency depreciation had only got worse, he said. He said the expected upside of the currency depreciation isn't seen.
Kapila Ariyaratne, CEO Seylan Bank told the Business Times on Thursday that there was an uptick in inward remittances during the first two weeks after the rupee was depreciated but since then has declined drastically. "The inflows must increase."
An importer said there's ‘runaway depreciation' which the banks cannot beat. Mahendra Jayasekera, Managing Director Lanka Tiles PLC
said that his company is struggling to import machinery to meet pro d u c t i o n demand. "We are struggling to open Euro 6 million import LC to bring large machines for the past four months," he told the Business Times on Thursday. He feared that in the future importing raw materials will also be a c h a l l e n g e. "Our appeal is for all political parties to get together and to come up with a viable solution."
A second banker said that honouring customer LCs is a big challenge as some are paying large bills. "We need to be reasonable and control the foreign currency outflow," he said adding that the capacity of each bank to manage and accommodate LCs is diminishing fast.
Small transactions are driving up the exchange rates in leaps and bounds, bankers lament. A third banker said the situation has become so bad that they cannot spare US$1, 000 for foreign travel per individual. He said the impact on import- dependent businesses especially in the small and medium enterprise sector is quite uncertain, noting:. “It will be at least six months before the International Monetary Fund standby facility will be negotiated - if at all. Sustaining these businesses till then is a real challenge.”
Economists say the move to depreciate the rupee was too little too late.