News
Exporters deny Sri Lanka Rs 287b a month by parking offshore
View(s):By Kapila Bandara
Sri Lanka’s exporters are continuing to hoard the bulk of their US dollar earnings overseas and denying the country the foreign exchange needed during this unprecedented economic meltdown.
From export earnings of an average US$1 billion a month, at least US$800 million (Rs 287.23 billion) is not being brought back to Sri Lanka. This is more than enough to bring twice as much refined fuel than in May, with US dollars left over for medicine, or milk powder for children.
Under the Repatriation of Export Proceeds into Sri Lanka Rules No. 5 of 2021, published by a gazette notice, the Central Bank of Sri Lanka made it mandatory for exporters to bring back foreign exchange earnings and convert to rupees, except for allowed payments, just as forex reserves began to evaporate. Exporters lobbied and the rules were tweaked.
The scale of the unsavoury practice of not converting a chunk of forex earnings was once again highlighted by Central Bank Governor Nandalal Weerasinghe. He specifically noted this on Monday in a conversation with a local TV network.
“Last year, when we had US$1 billion (in export) earnings, the import expenditure was US$2 billion. As a result of policy decisions (we took), this (import expenditure) has declined to US$1.3 billion,’’ he said.
“If we examine each month, US$1b export revenue and U$300m in remittances (from Sri Lankans overseas), we have US$1.3b. Then, it should be balanced and should not be a problem, based on the data.
“But, for two reasons, this is not happening. First, (long) overdue payments for fuel and so on are being settled. Second, let’s assume we have US$1b export revenue and US$300m in remittances, there is an issue with exporters, which I had mentioned previously, too.’’
About a year ago, the CBSL found that while Sri Lanka Customs reported US$985m in exports in the eight months to August 2021, in July/August that year, exporters had brought back an average of US$640m a month. Based on that data, US$345m had not been repatriated to Sri Lanka. The monthly gap was deemed to be “alarming’’. It was also thought that exporters were reluctant to convert export earnings from January 2020 to July 2021, because of speculation on the exchange rate.
Dr Weerasinghe said: “The rule is that they (exporters) must bring that US$1b and once they take a portion of it for (their) imports, they must hand over the remainder to the banks. They must convert that into rupees, so that it can be used for imports such as fuel. Exporters are not bringing (back) all their earnings, (and) it is evident in the data.’’
He noted that since the past week, the CBSL had been scrutinising the past five months of export earnings.
“We should have received US$5b in export earnings. But, data shows, only 20% has been converted into rupees. Normally, at least 40% should remain in the country,’’ he said.
“For example, garments exports of US$100m, about US$60m is spent on imports, US$40m should remain (in the country). Say, tea and rubber, out of US$100m (export revenue), about US$10m is spent on things like packaging, a small amount. So, US$90m should remain.
“Exporters have a big responsibility at a time like this, to bring (back) their (export) earnings and hand it over to the banks. Of the US$1b export earnings a month, over the past 5 months, exporters have shown us that they had spent US$800m for imports, or for settling (overseas) loans.’’
He insisted: “This can’t be. We are left with US$200m a month.’’
He then offered: “I am willing to accept expenditure of 50% of that US$1b in earnings (a month). For example, for garments exports, they import raw materials.’’
Gaping loopholes continue amid business lobbying in the import-export regime of Sri Lanka, a country that has zero import duty on diamonds and pearls as well as gym equipment, but charges 43% taxes on sanitary pads. Diapers for babies are charged at 15%.
And while the CBSL pleads for Sri Lankans working overseas to remit more, first quarter statements of commercial banks, including ones owned by tycoons, show that foreign currency deposits are in the hundreds of millions and growing. Besides, it is the remittances of Sri Lankans that partly help plug the trade deficits through inflows to the external current account.
If, as the CBSL calculates, US$800m is stashed offshore every month, then, over the five months of data it looked at, US$4 billion (Rs 1.43 trillion) in foreign exchange would have been denied to Sri Lanka.
And yet, according to the CBSL gazette notice of October, 2021, the director of the department of foreign exchange, “shall have the right to initiate action against any non-compliance’’.
The Foreign Exchange Act No. 12 of 2017 is the legislation that governs forex transactions.
| Tea exports continue to drop Sri Lanka’s tea shipments dropped in the first half and in June as well. In the first half, earnings from tea shrank by 11.25 percent to US$ 577.38m (Rs 206.96 billion) from the year before, the Export Development Board has announced, citing Sri Lanka Customs data. Exports of all sub categories except tea bags fell. Shipments of packets of tea dropped by 11.47 percent, while bulk tea shipments fell by 10.96 percent. Instant tea was down by 28.55 percent and green tea fell by 23.65 percent. Tea accounted for 12 percent of goods exports in June and fell by 5.99 percent from the year before to US$ 116.49 million. In June, export earnings from spices and essential oils dropped by 10.9 percent to US$ 31.74m from the year before. Pepper exports made up 49.68 percent, oleoresins dropped by 7.26 percent, and cloves declined by 24.15 percent. Earnings from cinnamon increased by 89.81 percent. Overall exports in June increased by 20 percent from the year before to US$ 1.208 billion, largely from apparel and textiles shipments, rubber-based products, coconut-based products, food and beverages, and seafood. The United States remained the biggest market absorbing shipments of US$ 1.687 billion in the first half. Exports increased by 24.54 percent on-year from US$ 1.355b in 2021. | |
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