30 October 2021 12:38 am Views - 419
Issuing fresh rules on the repatriation and conversion of export proceeds, the Central Bank yesterday asked the exporters of both goods and services to convert their export proceeds into rupees, upon meeting a number of authorised payments in foreign exchange, on or before the seventh day of the following month, effective from October 28.
What made the new rules distinct from the hitherto applicable rules are the inclusion of services exports and the leeway afforded to exporters to “meet all the expenditure relating to export of goods and services out of their export proceeds”, before converting the remaining foreign currency into Sri Lankan rupees.
While the exporters are continued to be required to bring back all proceeds within 180 days from the date of shipment and provision of service, the Monetary Board listed a number of authorised payments, which can be met by them before any conversion takes place.
The rules, which were published in Extraordinary Gazette No. 2251/42, dated October 28, stipulated five such authorised payments containing “outward remittances in respect of current transactions, permitted withdrawal in foreign currency notes, debt servicing expenses and repayment of foreign currency loans, purchase of goods and obtaining services, including one-month commitments and payments in respect making investments in Sri Lanka Development Bonds in foreign currency up to 10 percent of the export proceeds so received”.
Until the new rules came into effect, the exporters of merchandise goods were required to convert 25 percent of proceeds, with exceptions to come down to 10 percent within 30 days, upon the receipt of such proceeds.
As a result, the exporters, albeit complied, faced multiple issues when they had to meet numerous expenses in foreign currency as part of their international trade operations such as those who depend on substantial imports for their raw materials to power their export production and the foreign currency loans, which need to be serviced.
The new gazette will effectively revoke all previous gazettes, which contained the rules on the export proceeds repatriation and conversion issued from February 18 to May 28, this year, as the Central Bank from time to time tweaked the rules to both mitigate the hassle for the exporters as well as to address the foreign currency liquidity shortage, which came to a head from June this year.
Conversion of export proceeds will increase dollar supply in the domestic foreign exchange market.
The Central Bank has mentioned it buys 10 percent of converted export proceeds into reserve building, just the same way it does for worker remittance receipts every month.
The Central Bank unveiling the six months road map for macro-economic stability said it expects to collect US $ 150 million from the two sources in the three months to December 2021 and further US $ 250 million in the subsequent three months through March 2022, to rebuild reserves out of non-debt creating inflows.
Sri Lanka’s exports have been robust with just under a billion dollars in earnings in September, after exceeding billion dollars in earnings every month in the preceding three months consecutively.
In an information note issued in late September, the Central Bank said it had observed a significant gap of US $ 345 million between the average monthly export earnings and average repatriations through August.
It further showed some level of reluctance by the exporters to convert their earnings into rupees, due to undue speculation, a statement which irked the export community.
The Central Bank showed that that condition had built up dollar deposits worth of US $ 1.9 billion from January 2020 through July 2021 in the banking sector.
Hence, the new rule will slow the accumulation of dollar deposits, as they are required to convert any remaining repatriated foreign currency after meeting all of their authorised payments.