Exporters criticize ‘lack of dialogue’ over mandatory dollar conversion rule

• Say govt. should have consulted private sector before imposing such restrictions
• Point out move could jeopardize govt.’s merchandise exports income target of US$13 bn
• Gem and jewellery exports in particular to be hit hard
• Export chambers, associations yet to fully assess rule’s impact

By Nishel Fernando
Exporters lament the lack of stakeholder consultation when the Central Bank last week abruptly decided to impose fresh regulations on exporters to immediately convert 25 percent of their export proceeds to rupees through licensed banks.

In a Gazette notification published last Thursday, the Central Bank ordered exporters to immediately convert 25 percent of foreign exchange proceeds they earn into rupees while continuing the 180-day repatriation rule.

“The requirement of converting 25 percent out of the export proceeds received in Sri Lanka, shall continue, until any other percentage as may be determined by the Monetary Board, from time-to-time,” the CB stated in a media release last Friday. 

Although, export chambers and associations are yet to fully assess the impact of the rule on their members, they lamented the absence of stakeholder consultation before imposing such a measure.

“General consensus is that the government should have had a dialogue with the private sector to get their views before imposing such restrictions,” National Chamber of Exporters of Sri Lanka (NCE) Secretary General/CEO, Shiham Marikar told 
Mirror Business.

Similarly, the Exporters Association of Sri Lanka (EASL)Chairman Chrisso de Mel opined that it would have been best to provide adequate time for exporters while engaging in discussions with exporters in relation to such regulations. Some exporters viewed that the move would jeopardize the government’s expectation to earn US$13 billion as earnings from merchandise exports this year.

The gem and jewellery export in particular is expected to take a hit from the measure. Gem and jewellery exporters highlighted that they stand to lose business to their competitors due to this rule.

“When you look at gem exports from Sri Lanka, over two-third of them are gem stones imported from other countries, which are brought down here an dadded value and re-exported to other countries. Under the new rule, exporters would struggle to find adequate time to source those essential supplies. At a time when we should be investing more money in sourcing gemstones from other countries to prepare for the post-COVID market, our exporters are going to face shortages in foreign exchange.

 Therefore, we stand to lose a large chunk of business on such high value items to our competitors in Thailand and Hong Kong,” a top gem and jewellery exporter told Mirror Business. The government expects US$1 billion earnings from gem and jewellery exports this year. The impact of the rule would differ on export firms on an individual basis, based on their cash flows and foreign exchange management strategies.

Some exporters retain export proceedings in foreign currencies in order to reduce conversion costs, as they need foreign currency to purchase inputs and obtain foreign currency loans. Therefore, exporters feel the move is likely to increase costs for some exporters.

In addition, the foreign exchange risk management strategies of certain companies, in particular those engaged in both export and import through different entities of the parent company are also likely to come under some stress. Such companies are likely to get exposed to higher foreign exchange risks, which could increase their costs.

Another exporter, who preferred anonymity, cautioned that the rule could also encourage exporters to explore loopholes or other avenues to evade it. The move came into effect last week after the Central Bank announced that the country’s foreign exchange reserves fell to US$ 4.8 billion in January. Sri Lanka faces over US$5 billion in external debt servicing this year.