IMF to hold discussion with govt. to phase out controls on repatriating export earnings

• At present, exporters are required to repatriate export proceeds to the country within three months

The International Monetary Fund (IMF) will soon begin discussions with the Sri Lankan government on the pace of abolishing the controls on repatriating export proceeds.

“The pace to phase out this temporary measure will be further discussed in the Article IV consultation in early 2018, together with Sri Lanka’s overall efforts to further liberalize the capital account and develop the foreign exchange market,” the IMF said in the third review under the Extended Fund Facility provided to Sri Lanka.
Due to the substantial balance of payment pressures, former Finance Minister Ravi Karunanayake in April 2016 introduced regulations requiring exporters to repatriate export proceeds to the country within three months.

“This repatriation requirement could potentially discourage exporters’ outward investments (capital outflows) by increasing the cost of outward payments and transfers, constituting a capital flow management measure, according to the fund’s Institutional View on capital flows,” the IMF said.

For most of 2017, many Sri Lankan firms had preferred making capital investments overseas rather than locally, according to the Central Bank.

The IMF said that since the repatriated export proceeds do not need to be converted into rupees, they can be freely taken out from the country with no restrictions on their overseas use. 

However, it said that the regulations had encouraged exporters to keep foreign exchange within the domestic financial system and helped reduce the imbalance in the foreign exchange market.

It added that the Sri Lankan government is of the view that eliminating the measure at the current juncture could be premature as Sri Lanka remains vulnerable to shocks especially with international reserves remaining below the adequate level.

However, the IMF has recommended removing this temporary measure as policy adjustments are implemented, since capital flow management measures should not be used as a substitute for the required macroeconomic adjustments.