BOI investors dismayed by CB conversion rules
Foreign investors are up in arms against the dollar-rupee conversion rules announced by the Central Bank (CB) recently.
According to Free Trade Zone Association General Secretary Dhammika Fernando, BOI investors are concerned about their unpaid declared dividends.
“Corporates want clarity on how the process operates and in this respect they have asked for a special meeting with the Central Bank,” he said adding that many investors have said they may have to take their investments elsewhere. The recent CB directive may also result in many foreign exchange-earners withholding money into the country.
The CB last week said that authorised dealers or the banks should convert the US dollars coming to foreign currency accounts through export proceeds within one month into local rupee accounts.
Information technology (ICT) unlike in apparel exports (which has a 60 per cent imported input) has a 100 per cent value addition and converting their dollar earnings will severely affect these businesses. Such entrepreneurs will look to divert their earnings elsewhere, an analyst told the Business Times on Wednesday.
A software exporter noted to the Business Times that forcing them to convert their dollar earnings to Sri Lankan rupees is like making them pay penalties for a crime that was committed by others. He added that the lack of knowledge on the big picture by the decision-makers has put many foreign exchange-earners at ransom. “Moreover, many such businesses will be refusing the formal banking channels in the future and use cryptocurrency.”
Economists said that not only in IT, but other industries will also resort to retaining cash in other countries further exacerbating the forex situation in Sri Lanka.
How can the CB ‘mandate’ exporters to receive proceeds of such exports in Sri Lanka within 180 days, if such exports were not either funded with bank working capital obtained in foreign currency or exported using the banking channels was the question many bankers posed.
The right of retaining export proceeds in the currency of invoicing or any other currency is the right/entitlement of an exporter especially when there is no exchange control in the country after the introduction of the Foreign Exchange Management Act, one banker noted to the Business Times.
Provision of professional services by an individual or firm consumes intellectual capital for which there is no foreign currency associated input cost, another banker noted to the Business Times. “So, if this is the case, why should such a service provider (a) be mandated to convert invoiced proceeds earned in foreign currency into rupees or (b) be mandated to even bring back such proceeds of invoiced services into the country. It is unfair to mandate professionals resident in Sri Lanka offering services invoiced in foreign currency to be directed to convert such proceeds into rupees when a non-resident providing the similar service could now retain his proceeds in the currency of invoice if he chooses to maintain a PFCA/ BFCA account in Sri Lanka.”
Another grey area was subjecting tea and apparel, along with the top 10 industries that currently have established mature parallel factories operating in overseas markets to mandatory repatriate profits/proceeds in rupees to Sri Lanka. “If so, why would these exporters continue to run the Lankan operations when they can develop their overseas operations and retain profits and proceeds overseas?” an economist asked.