Exporters warn of closures as SL banks lose credibility
Sri Lanka is fast losing its credibility as foreign banks show reluctance to recognise Letters of Credit (LCs) opened by local banks since last week as many exporters are finding it hard to purchase raw materials. This will have a trickle effect as delays in meeting export orders will result in smaller firms becoming the first casualty, industry sources said.
Exporters state that since local banks are not being accepted by overseas banks it is likely to cause additional pressure on exporters as most small businesses operate on purchasing through LCs.
In fact even larger corporates are being asked to pay the monies upfront and have been compelled to channel their finances through the foreign banks.
In fact even larger corporates are being asked to pay the monies upfront and have been compelled to channel their finances through the foreign banks.
It is learnt that the Indian government has already intervened in this regard, requesting an Indian state bank in Sri Lanka to recognise their LCs.
SMEs are unable to make payments upfront and so they need to open LCs to purchase raw materials to manufacture for the export market.
But under the circumstances if they are unable to purchase these raw materials it would result in a vicious cycle and thereby eventually impact on the dollar exports sector.
“At the moment I don’t think authorities can do anything,” one exporter said adding that they had pre-warned authorities about this eventuality and now it’s too late to discuss these matters with anyone.
Sri Lanka’s credit rating has been fast sliding as the country announced its default on debt servicing and even this week the country has been further downgraded by Moody’s rating agency lowering its score to Ca from Caa2.
This is said to be an assessment that “reflects governance weaknesses in the ability of the country’s institution to take measures that decisively address the very low adequacy of foreign exchange reserves and very weak debt affordability”.
The apparel industry is currently facing these hardships but these exporters continue to hold onto their long established buyers and attempt to sustain the positivity as they still bank on hope.
However buyers of apparel from Sri Lanka have seen the situation in the country and are said to have started shifting orders to India.
Meanwhile with costs of production on the rise export manufacturers are likely to see closures in future as freight rates rise and the local container transporters increase fares by 65 per cent and the lack of sufficient funds to purchase raw materials, FTZ Manufacturers Association Secretary Dhammika Fernando told the Business Times.
He explained, “It is imminent we will go bankrupt as there is a danger of orders going to other countries that could lead to factory closures as a result of the rising cost of production and the local banking system failures”.
There is a problem of not having enough money to get raw material imports and so it will be delayed and resulting in a delay in meeting targets for orders.
Other internal factors like increased cargo charges and rise in bus fares the export manufacturing industry is headed towards bankruptcy, Mr. Fernando noted.
Losses are expected to be seen by mostly the smaller firms in the short term that could eventually go bankrupt or take to closures, it was pointed out.
Meanwhile exporters have been permitted to purchase fuel direct from CEYPETCO, Lanka IOC and bunkering agents using their own foreign exchange resources.