NCE raises concerns over absence of industry consultation on forex regulation

The National Chamber of Exporters of Sri Lanka (NCE) yesterday raised concerns over the lack of industry consultation prior to the recently introduced regulations that significantly shorten the period available for exporters to retain foreign currency earnings.

The concern follows the issuance of a Gazette Extraordinary by the Central Bank of Sri Lanka, which requires exporters to convert foreign currency proceeds held in designated accounts by the tenth day of the following month, a considerably shorter timeframe.

While exporters remain committed to complying with existing requirements to repatriate export proceeds to Sri Lanka, NCE members have questioned why a policy with direct implications for the export sector was introduced without prior consultation with exporter representative bodies and industry stakeholders.

Feedback received from NCE sectoral heads and council members indicates concern over the operational, financial and competitiveness-related impact of the new requirement.

A key issue highlighted by members is the absence of consultation with organisations representing exporters, including the NCE. Members have also questioned whether institutions responsible for export development and promotion were consulted and whether a comprehensive assessment of the impact on exporters was undertaken before the measure was introduced.

The concerns arise at a time when Sri Lanka’s export sector continues to record growth. Total exports from January to April 2026 are estimated at $ 5,784.38 million, representing a 4.3% increase compared to the corresponding period of 2025. Merchandise export earnings during the same period amounted to $ 4,524.62 million, recording a year-on-year increase of 4.8%.

Members noted that many exporters retain foreign currency balances for legitimate business purposes connected to export operations. These include the importation of raw materials and intermediate goods, purchases of machinery, equipment and spare parts, overseas marketing activities, and the settlement of foreign currency-denominated obligations.

Sri Lanka’s total import expenditure increased by 25.2% year-on-year to $ 8.23 billion during the first four months of 2026. Imports of intermediate goods, which include many of the raw materials and production inputs used by export industries, rose by 24.1% to $ 4.7 billion during January-April 2026, with fuel making up a substantial portion of it ($ 2.17 billion). Textile and textile article imports amounted to $ 899.4 million, remaining one of the largest categories, followed by other imports such as $ 205.6 million on plastics and articles, and $ 95 million on rubber and articles. Expenditure on investment goods reached $ 1.52 billion during the same period, including $934.2 million spent on machinery and equipment. These highlight some of the foreign currency requirements associated with production and export-related activities.

Moreover, many export industries operate on seasonal production and procurement cycles. As a result, export proceeds received at one point may only be required several months later to finance future export orders. Members therefore believe that compulsory conversion within a significantly shorter timeframe could disrupt business planning and cash flow management.

Another concern relates to the additional costs exporters may incur as a result of the new requirement. Members pointed out that exporters may be compelled to convert foreign currency earnings into Sri Lankan rupees and subsequently repurchase foreign currency when payments become due. Such transactions could expose businesses to exchange rate fluctuations, bank buying and selling spreads, and additional transaction costs, increasing operating expenses.

Exporters with foreign currency-denominated loans have also highlighted possible challenges stemming from the regulation. Some businesses retain a portion of their export earnings in foreign currency accounts to meet future loan repayments. Mandatory conversion could require such businesses to repurchase foreign currency at a later stage, exposing them to exchange rate risks and creating cash flow pressures.

In light of these concerns, members have proposed that a degree of flexibility be considered within the regulatory framework. One suggestion is to allow exporters to retain foreign currency balances where future foreign currency requirements can be demonstrated, including for raw material imports, machinery purchases, foreign currency loan repayments and other operational commitments. Under such a mechanism, exporters could submit projected foreign currency requirements through their banks and obtain approval to retain the necessary funds in foreign currency accounts.

Several members further noted that foreign exchange conservation efforts should be addressed through a broader policy approach.

Official data indicate that Sri Lanka’s merchandise trade deficit widened to $ 3.7 billion during the first four months of 2026, compared to $ 2.3 billion during the corresponding period of 2025, reflecting stronger growth in imports relative to exports.

In this light, suggestions included reviewing imports of non-essential goods and addressing areas where foreign exchange outflows could be reduced without affecting productive sectors of the economy. 

There is broad agreement among the NCE members on the need to continue repatriating export proceeds in accordance with existing regulations and on the importance of supporting national economic objectives. While acknowledging the importance of strengthening the country’s foreign exchange position, many expressed the view that such initiatives should not place a disproportionate burden on exporters, who remain among the country’s primary generators of foreign exchange.

Members maintain that foreign exchange management measures can be more effective when developed in consultation with the sectors directly affected by them. The Chamber therefore emphasised the importance of engaging exporter representative bodies and other relevant stakeholders when formulating policies that have a direct impact on the country’s export sector and foreign exchange earnings.