Forex conversion needed for rupee stability and improved SL credit profile: CB

• Defends latest regulation to convert 25% of export earnings immediately 
• Argues it will not have adverse impact on exporters or imports 
• Says similar regulations exist in other countries 
• Measure needed to stabilise rupee, strengthen credit profile and increase non-borrowed reserves

The Central Bank yesterday defended the recent regulation on exporters to immediately convert 25% of their forex repatriations as not having undue impact, and insisted it was necessary to stabilise the currency, strengthen Sri Lanka’s credit profile and increase economic reliance.

Issuing a statement, the Central Bank said the requirement to repatriate foreign exchange earnings to Sri Lanka and to convert 25% of these earnings into rupees does not exert “excessive pressure” on exporters. It added that the domestic value addition in export sectors varies from one industry to another, and the requirement to convert 25% of foreign exchange earnings into rupees will encourage domestic value addition in any export business that has not yet reached at least this level of value addition. 

The Central Bank argued such repatriation and conversion requirements were “not uncommon in other regional economies, which have displayed strong export performance,” added that, in fact “the requirements are more stringent in numerous aspects in these countries.”

The Central Bank also emphasised that even after the conversion of 25% of export proceeds, exporters will continue to possess the converted amount in Sri Lankan rupees, while being allowed to utilise the remaining 75% of foreign exchange earnings to purchase imported inputs, to save in foreign currency or for further conversions, at their own free will.

“The requirement for Licensed Banks to sell to the Central Bank 50% of export proceeds converted into Sri Lanka rupees by exporters (12.5% of total foreign exchange earnings) has been introduced to ensure that the country is able to build its non-borrowed reserves gradually to a high level,” the statement said.  

“Along with ongoing active efforts and fiscal and monetary policy support to promote foreign exchange earning sectors of the country, such absorption of foreign exchange by the Central Bank would help the country to rely on its own resources instead of foreign borrowing, while strengthening Sri Lanka’s credit profile, enhancing exchange rate stability, and improving the resilience of the economy.”