The current foreign exchange liquidity shortage is leading to rising unemployment hand in hand with hyperinflation, a situation which economists call stagflation, the United Federation of Labour says in a statement.  

 The statement has been signed on behalf of the Federation by Ceylon Bank Employees Union, Ceylon Teachers Union, Dabindu Union, Engineers Services Professional Association, Mass Movement for Social Justice, Movement for Land and Agricultural Reform, National Fisheries Solidarity Movement, North South Solidarity Group, Professional Centre for People’s, Protect Union, Red Flag Union, Sri Lanka All Telecommunication Employees’ Union, Stand Up Workers’ Union, Textiles Garments and Clothing Workers’ Union, United Fishermen’s and Fish Workers’ Congress, Young Journalists’ Association, Young Lawyers’ Association, Professor in Economics Mr. Sumanasiri Liyanage, Ms. Amali Wedagedara (Political Economist and PhD Student), Mr. Kalpa Rajapaksha (Economist and PhD Student).  

 “Foreign exchange liquidity shortage in the domestic financial system has led to a crippling scarcity of imported essentials like fuel, medicine, food and fertilizer, stoking inflation of nearly 70% and food inflation of 95% by September this year. The unavailability of foreign exchange is shrinking production; Sri Lanka’s Industrial Production Index collapsed 14.3% by August 2022. It is leading to rising unemployment hand in hand with hyperinflation, a situation which economists call stagflation. As a result, a large section of the population is facing food insecurity, a crisis in healthcare and a devastating collapse in living standards.    A devastating foreign exchange shortage is created while export revenues are at their highest and foreign debt servicing costs are low as a result of non-repatriation of residual export income by exporters. New rules under Gazette Extraordinary No. 2251/42 dated October 28, 2021 stipulates that residual export income should be fully repatriated to the domestic financial system within 180 days from the date of shipment or provisioning of services. In instances where this condition is violated, the Director of the Foreign Exchange Department of CBSL has the authority to take necessary action against non-compliance (Section 8 of Rule No.5 of 2021).  
In this connection Governor of CBSL Dr. P. Nandalal Weerasinghe revealed on July 25, 2022 that less than 20% of the export incomes are being repatriated. Banking sector professionals assert that currently repatriation is well below 10% of the declared export incomes. The Governor also pointed out that repatriation was 65% in mid-2021. In a report titled ‘Trade-Related Illicit Financial Flows in 134 Developing Countries 2009 – 2018’ by the Washington based global research organization Global Financial Integrity it is estimated that over US$ 40 billion was transferred out of Sri Lanka by exporters and importers through trade mis-invoicing (over-invoicing imports and under-invoicing exports) between 2009 and 2018 which is undeniably the principal long-term factor contributing to the ongoing collapse of the Sri Lankan economy.   In light of this, we demand that CBSL make public the steps it has taken for non-compliance of CBSL regulations on foreign exchange transactions including repatriation of export proceeds. We also assert that Section 9 (2) of the Monetary Law Act of 1949 (as amended) gives the Monetary Board of the CBSL expansive powers which includes directly accessing offshore accounts and enforcing repatriation of residual incomes of exporters who violated repatriation requirements. We urge CBSL to take action against non-compliance by directly enabling the Foreign Exchange Department of CBSL to access offshore accounts of the exporters and repatriate export incomes held outside the domestic banking system,” the statement said.