CBSL Governor Ajith Nivard Cabraal

Exporters have expressed concerns over the Central Bank’s latest move to make repatriation and conversion of foreign exchange earnings to rupees mandatory saying it signals “over regulation”.

On Friday, the CBSL issued a Gazette which requires repatriation of export proceeds (by both merchandise and service exporters including tourism and IT) into Sri Lanka and conversion on or before the seventh day of the succeeding month. However, exporters could retain and use such proceeds only for five qualifying payments.

They are Outward remittances in respect of current transactions; Withdrawal in foreign currency notes, as permitted; Debt servicing expenses and repayment of foreign currency loans; Purchases of goods and obtaining services including one-month commitments; and Payments in respect of making investments in Sri Lanka Development Bonds in foreign currency up to 10% of the export proceeds, so received.

The latest move according to exporters is highly discouraging with some going to the extent of saying the previous rule of 25% conversion was better.

“This is sheer over regulation,” said one leading exporter who warned that the move will have repercussions including discouraging foreign investments for export-oriented sectors.

Exporter lobby groups are also disappointed that the CBSL had failed to ensure adequate consultation before gazetting the new rule.

Others claimed that the new move could trigger flight of foreign exchange and capital by forcing exporters to under invoice and importers to over invoice.

In late September CBSL revealed that nearly $ 3 billion worth of export earnings in the first eight months were being retained overseas by exporters without repatriation largely on speculation of steeper depreciation of the rupee. This allegation sparked widespread criticism with some exporter lobbies asking the monetary authority to come clean with actual figures and name exporters.

CBSL however said the new rules ensure exporters are able to meet all the expenditure relating to the export of goods and services out of their export proceeds.

Some experts argued that the Gazette should have been issued by the Minister of Finance and not the CBSL. However, this was not the first time CBSL issued a Gazette where former Governor Prof. W.D. Lakshman notified the previous requirement via a Gazette as well.

Sri Lanka’s total exports have remained robust despite challenging times. As per the latest data of the Sri Lanka Export Development Board (EDB) the country’s total exports were $ 11.1 billion in the first nine months, reflecting an achievement of 70.63% of the $ 15.72 billion target for the entirety of 2021.

In mid-2021, the EDB upwardly revised the original export target of $ 15.68 billion to $ 15.72 billion, as post-COVID reopening of the country augured well for a better export performance in 2021.

As per the new revision, EDB expects $ 12.14 billion from merchandise exports and $ 3.58 billion from services exports. Originally, it expected only $ 12 billion from merchandise exports, while services export target remained unchanged.

During the first nine months of the year, merchandise exports were up by 19.3% to $ 8.88 billion from the corresponding period of last year. The estimated value of services exports for the period of January to September was $ 2.2 billion, increasing 23.52% over the corresponding period of 2020. The services exports estimated by EDB consist of ICT/BPM, Construction, Financial services and Transport and Logistics.

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