Forced exporters’ proceeds conversions on the cards
Scrambling for a way out of the fiscal crisis, converting proceeds of exporter remittances is an option the government is exploring, Central Bank (CB) sources said.
The CB is exploring ways which would require exporters to send money directly to the CB instead of their dollar accounts in different commercial banks. “Then CB plans to convert a certain amount of this to rupees,” a CB source told the Business Times on Wednesday. He said this is a model that India follows.
Economists point out that India has massive reserves to the tune of US$650 billion. “This is not an issue for exporters in India as they have confidence in their government. In contrast, the CB has $2.7 billion which is meagre. And over here exporters are worried,” he said noting that it will be the biggest negative of the government if they decide to carry out with forced conversions of US dollars.
This has come on the back of a new Moody’s Investors Service report saying that limited external financing options and pandemic-related lockdown weighing on the recovery of non-debt generating inflows, the forex reserves data points to a rising risk of debt default,
Without sizeable external financing that is secure and long-term, Moody’s expect foreign exchange reserves to continue declining over the next two to three years.
There are also talks of increasing the interest rates to control inflation by the Central Bank, CB sources said.
Amongst others an option they are pursuing is to hire foreign experts to restructure debt, they added.
Critics point out that whichever way you look at it, the government will need some hard currency to boost its reserves as soon as possible. They point out the sole focus of the government is repaying debt, which is stifling the economy. “They need to do something different and realise that now is the best time to defer payment which is also a tool/ strategy,” an economist said. By the end of 2020, Sri Lanka’s debt-GDP ratio was 101 percent and is expected to rise to 108 percent by next year.
Meanwhile, the new CB Governor Ajith Nivard Cabraal will be having meetings with bankers next week – to make some critical decisions. Also, the CB is being restructured with CB officials noting that the most prominent was removing the Secretary to the Monetary Board Ms. K. M. A. N. Daulagala, also Assistant Governor who, among other matters, coordinated with the Attorney’s General office on all matters related to the Bond Commission proceedings.