CB says conversion rule removal subject to service exporters bringing in additional proceeds

• Cautions rule will be brought back if exporters fail to bring in additional proceeds
• Says no mechanism as yet to recognise service exports, unlike merchandise exports
• Jan.-Jun. saw US $ 1,533mn come in as service export receipts, of which US $ 406mn has been converted to Sri Lankan rupees

The Central Bank (CB) this week stressed that lifting of the forced conversion rule on service export receipts is subject to service exporters bringing additional export proceeds to the country. 

“We lift the forced conversion rule on service export receipts. We will be monitoring the system. If they fail to bring in additional export proceeds, we can bring this rule back,” CB Governor Dr. Nandalal Weerasinghe stressed. 
The CB lifted the mandatory requirement to convert service export proceeds that are received in Sri Lanka on or after 12th of this month. 

The decision was made after the service exporters, led by the IT/BPM sector, pointed out that the mandatory requirement acts as a disincentive for the service exporters to repatriate all of their earnings to the country. 
“The service exporters pointed out that they couldn’t settle their foreign currency-related expenses with their earnings, due to the forced conversion rule,” Dr. Weerasinghe noted. 

“There is no mechanism to recognise service exports, unlike merchandise exports, which are going through Sri Lanka Customs. Therefore, we have to rely on what they declare. As a result of the mandatory conversion rule on service export receipts, they were not bringing in 100 percent of their earnings,” he elaborated. 

Amid the foreign exchange shortage, the CB last year imposed a series of controls, forcing the exporters of goods and services to convert the dollars by force and also imposed outward exchange controls.

 Soon after becoming the CB Governor in April, Dr. Weerasinghe said he would remove the forced conversion rule on service export receipts as part of a plan to relax the controls imposed on foreign exchange repatriation.   Meanwhile, the CB citing information submitted by the banks said that during the first six months of the year, a total of US $ 1,533 million has been received as service export receipts, of which US $ 406 million has been converted to Sri Lankan rupees. 

The highest monthly service export proceeds of US $ 324 million were received in March 2022.