Payments to local suppliers in dollars permitted

The Central Bank in an extraordinary gazette issued on Friday included payments to local suppliers as part of permitted payments and commitments from the dollar proceeds before converting the residual amount into Sri Lankan rupees on or before the seventh day of the following month. 

The Central Bank in an October gazette permitted five items where the exporters of merchandise and services could meet and commit prior to the mandatory conversion rule. 

Exporters of merchandise and services are required to receive proceeds within 180 days from the date of the shipment or provisioning of services. 

“…payments to local suppliers permitted under the provisions of the Foreign Exchange Act, No. 12 of 2017 for the purchases related to the particular export of goods and/ or services”, the gazette notification said. 

Before this permission, exporters of merchandise and services were allowed to utilise their foreign currency earnings for raw material and other intermediate goods that are required for producing their export goods, with up to a month’s commitment. They were also permitted to withdraw in foreign currency notes or transfer of funds for travel purposes related to the trade, debt servicing payments on foreign currency loans obtained, payments of dividends and salaries to the expatriate employees, and finally the payments in respect of making investments in Sri Lanka Development Bonds in foreign currency up to 10 percent of the export proceeds. 

While the local supplier could receive their invoice in foreign currency they, “shall mandatorily convert the residual of such receipts into Sri Lanka rupees, upon utilising the same only in respect of the authorised payments as stipulated in items…” the gazette added. 

Meanwhile, in an exception to the rule, “the Monetary Board may, at its discretion, grant exemptions to any or all of the requirements under these rules only in respect of exporters of goods and/ or services registered as ‘strategic development projects’ with the Board of Investment of Sri Lanka under the strategic development Projects Act, No. 14 of 2008, as amended, on a case-by-case basis”. 

Now that the rupee is floated, economic analysts argue that there is no rationale in continuing these draconian type policies on foreign currency earnings, which startled the market participants and in fact yielded opposite results to the originally expected.