SLT-MOBITEL and eChannelling Power Sri Lanka’s First National Pharmacy Helpline to Help People Receive Optimal Health Care – The Island
Sri Lanka’s merchandise export sector showed notable improvement in 2021 compared to the 2020 pandemic. According to the latest customs data, export earnings averaged US $ 985 million over the past eight years. months ending August 2021 compared to a monthly average of US dollars. 837 million in 2020, while average revenues amounted to 1,064 million US dollars between June and August 2021. This is a significant development as the merchandise export sector (comprising various products) is the most great source of foreign exchange in most countries including Sri Lanka. .
Sri Lanka has had a trade deficit every year since 1977, and the gap between merchandise imports and exports is usually funded by other entries in the external current account (such as entries from tourism and other services as well. than workers’ remittances) and financial inflows (such as investments and loans).
Against this background, some recent developments in the forex market have raised several concerns, especially as some of these typical currency inflow pathways have been affected due to the pressures associated with the pandemic, as explained below:
a) Compared to the average monthly exports reported by Customs (flow of goods) of US $ 985 million in the eight months ending August 2021, the monthly average repatriation of export earnings in July / August 2021 was 640 million US dollars, as reported by banks (financial flows). As a result, there was a significant gap of US $ 345 million between these two figures. This observation therefore raises the serious question of whether exporters comply with regulations on 100 percent repatriation of export earnings.
b) It also appears that due to undue speculation on exchange rate fluctuations, there was a reluctance to convert export earnings during the period January 2020 to July 2021, thus limiting entries into the domestic foreign exchange market, a situation which then resulted in an accumulation of foreign currency deposit balances with the banking sector for a significant amount of $ 1.9 billion. In addition, given the low interest rates of the rupee, some exporters have found it more lucrative to borrow and import to meet their input needs, which has increased tensions in the domestic market.
c) From the available data, it should also be noted that if there had been a 100 percent repatriation and a 100 percent conversion of export earnings, the monthly flow of export foreign exchange to the domestic market would have been US $ 985 million, and with an average import expenditure of US $ 1,670 million, this would have resulted in an average monthly gap of US $ 685 million. This could have been easily funded using other foreign currency inflows into the country.
d) Based on past statistics above in general, and the experience of July / August 2021 in particular, the monthly average gap between conversions of export earnings with incomplete repatriation and import expenditure was quite alarming.
It would also be fair to state that it is necessary for a country to ensure that the currencies generated by export activities are duly repatriated to the country and converted into its currency. In fact, many emerging market economies have repatriation and conversion requirements imposed on exports of goods and services. Country experiences vary and, over time, with the accumulation of a country’s foreign exchange reserves through these non-debt inflows, countries have also gradually relaxed these requirements. Regional economies such as Bangladesh, India, Indonesia, Malaysia, Nepal, Pakistan and Thailand have export revenue repatriation requirements currently in place varying from 3 months to 2 years after the export. Bangladesh, India, Pakistan and Thailand have repatriation requirements on export products of goods and services, while in Nepal, Malaysia and Indonesia the repatriation requirement does not apply. than for merchandise exports. Bangladesh, India, Pakistan and Thailand have respective local currency conversion rules according to different percentages depending on the nature and amount of export earnings repatriated and their use. These repatriation and conversion requirements ensure that the demand for foreign currency is met, including imports of intermediate and investment goods directly required by the export sector, as well as the country’s essential fuel and medical needs, which are indirect contributions to all sectors, including exports. sector.
Therefore, it would be reasonable for the government (which supports the export sector through lower taxes and many other incentives) and the Central Bank (which should ensure price and economic stability as well as economic stability). financial system) take measures to ensure the full repatriation of export earnings within a reasonable period of time and the conversion of receipts of export earnings into local currency, including earnings already accumulated in the accounts of exporters, in order to that the real objective of exports is achieved.
As will be understood, an export will only achieve its purpose when it finally culminates in the flow of foreign exchange generated by the export into the country’s financial system in its local currency. This objective would obviously not be achieved if the final conversion of export earnings into local currency did not take place. Accordingly, steps need to be taken to strengthen systems to monitor and implement actions that lead to this goal. Only then would the gap between the foreign exchange liquidity provided by exports and the demand for foreign exchange liquidity for imports narrow to the level published in the Central Bank’s own reports.