Financial Times

Migrant workers keep forex reserves steady
Nihal Sri Ameresekere believes the government should bring in some controls on export proceeds as the country is losing valuable foreign exchange. “Some exporters who get all kinds of benefits from the government, given for the purpose of ensuring the money is repatriated, keep their money overseas while poor migrant workers send all their earnings – when they are under no obligation to do so,” he says.

Excerpts from his comments:
Among the countries that enforce both exports proceeds repatriation requirements and exports proceeds surrender requirements are India, Pakistan, China, Malaysia, Thailand and South Africa.

All these countries, like Sri Lanka, are IMF Article VIII Status countries. Hence the question arises, as to how and why Sri Lanka had not and does not enforce export proceeds surrender requirements, or in the least enforce export proceeds repatriation requirements. Even the Republic of Korea enforces exports proceeds repatriation requirements. Aren’t the economies of these countries much larger and stronger, than Sri Lanka?

When concessions are afforded to promote exports by way of Tax Holidays, Import Duty Exemptions, afforded even prior to exports being effected, Concessionary Rates of Interests, Zero Rated VAT, etc., thereby foregoing valuable public revenue, then is it not the contractual obligation of exporters, who have been given such concessions, to ensure that exports proceeds are repatriated into Sri Lanka?

The systematic non-repatriation of exports proceeds is like the export of capital, which is prohibited, without the approval of the Controller of Exchange.

The Central Bank Governor has admitted that it is estimated that only 80% of export proceeds have been repatriated into Sri Lanka, and that when adjusted for exports, where no foreign exchange has been paid for corresponding imports of fabric in the garment industry, that the non-repatriation of export proceeds is estimated at 12% of exports.

The percentage of non-repatriation of export proceeds reckoned by the Central Bank estimated to be 12% is an ‘average’, where one exporter would have repatriated 100%, whilst another exporter would have not repatriated at all, thereby having, in effect, exported his ‘Capital’ in the form of goods, in violation of Exchange Control Act.

This 12% non-repatriation would amount to US $ 6.5 billion. Given the current situation, vis-à-vis, the position of foreign exchange reserves and the depreciation of the rupee against foreign currencies, this matter needs careful consideration in the national economic interest.

Jeremy Carter, until recently the IMF Resident Representative in Sri Lanka, has concurred with the reasons that I have given and also urged the government to monitor the repatriation of export proceeds, particularly where the government had granted concessions to exporters, vis-à-vis, through the BOI, other tax holidays / concessions, Zero rated VAT, concessionary Bank interest, etc.

Given the ground realities, it would be necessary to Gazette forthwith export proceeds repatriation requirements, and for documentation of exports to be channelled through the banking system, with immediate effect.

Serious consideration should be given at least to enforce export proceeds repatriation requirements, if not export proceeds surrender requirements, by empowering the Controller of Exchange to do so.

In addition, all exporters should submit export documentations through banking channels, so as to enable the Controller of Exchange to effectively enforce exports proceeds repatriation requirements. To avoid doing so on the pretext that bank charges are prohibitive would be nonsensical given the overall impact on the national economy.

Documentations in respect of 30% of exports, as per Central Bank sources, are not channelled through the banking system, and hence the banking system cannot be expected to monitor the repatriation of export proceeds in cases of such exports. To suggest that perishables exports, such as vegetable, fruit, etc. in view of urgency need to be exported, without the documentations being channelled through the banking system could not be a plausible reason. If 30% of the country’s exports are from this agricultural sector, would not then such agricultural sector be thriving and booming?

As a result of sustained representations made, the Central Bank commenced an exercise during the 4th Quarter of 2004, to monitor the repatriation of export proceeds in respect of the exports during the 3rd Quarter of 2004. Coincidentally, with this exercise being by Central Bank in December 2004, the US Dollar exchange rate sharply dropped from over Rs. 105 to below Rs. 97 over a very short period of time.

When at least 75 countries enforce surrender requirements where foreign export earnings are compelled to be converted to currency of that particular country, I just can’t understand how Sri Lanka can afford to take a liberal attitude particularly when we are raising foreign exchange loans on an urgent basis and disposing of assets to raise foreign exchange, also on an urgent basis. What is also incomprehensible is that India, Pakistan and China enforce such requirements while we borrow from them to pay back in foreign exchange!

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