Mystery of forex earnings
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Central Bank (CB) Governor Dr. Nandalal Weerasinghe and his officials hit a nerve when they said that some (not all) exporters had stashed foreign currency overseas without remitting it to the country.However, days after the claim was made, the Joint Apparel Association Forum (JAAF), the umbrella organisation that represents garment exports, reported that Dr. Weerasinghe had affirmed in a TV interview on December 8 that: “Of the exports in September and October, exporters have repatriated or brought 100 per cent of export earnings into our banking system. I want to make it very clear that based on the data for those two months, exporters are not keeping money abroad.”
JAAF was happy with his statement as it vindicated its consistent stand that exporters, at least garment exporters, were bringing back the money earned from exports while using a portion of the funds to buy raw materials for production purposes.
This conversation, which turned into today’s column, came during a Thursday morning call with my jolly-mood economist friend, Sammiya (short for Samson). “The Central Bank seems to have annoyed garment exporters with the claim that export earnings were not being remitted to the country,” he said.
“The Central Bank may have had information of some foreign export earnings not being remitted in the months before September and October, otherwise, it wouldn’t make baseless claims,” I said.
“Nevertheless, it appears to have miffed exporters,” he replied.
“Yes, even the tea exporters were annoyed over the Central Bank statements and they too were preparing to issue a statement, saying the industry brings back all the money earned abroad through exports,” I said.
In a statement, JAAF said its membership strictly abides by the CB laws on repatriation of export income. It reiterated that the apparel sector brings back the entirety of its export proceeds to Sri Lanka.
The claims and counter-claims are mystifying. For example, during the CB claims and the JAAF response, another government report tracing illicit financial flows, corruption and illicit trade, said Sri Lanka has lost a staggering $53.5 billion during the past 12 years following this practice of parking money overseas.
To get ‘to the bottom’ of these issues, I spent the morning crunching numbers and analysing data over the past years. Phew! What a task. Overall, it seems we were doing well in 2018 (one of our best years for the economy) or am I missing something not being an economist?
Our balance of payments which includes trade balance, are made up of goods and services’ exports and imports. 2018 was a good year with US$11,890 million worth of exports and $22,233 million imports with the trade deficit being -$10,343 million. However, add worker remittances – $7 billion; tourism income – $4.4 billion; transport – $2.5 billion and IT – $0.8 billion, to export earnings and the final tally of export earnings could be $26.6 billion, which means a surplus balance.
In 2021, one of our worst years due to the impact of COVID-19 on the economy which included a number of businesses crashing, exports totalled $12,499 million, while imports were $20,637 million with the deficit being -$8.136 billion. Add another $4 billion from worker remittances and also inflows for IT and transport (there were negligible earnings from tourism due to the slow recovery in this sector), and the deficit would have further reduced. However, one needs to add foreign debt repayments.
Imports last year fell sharply due to restrictions on a number of imports while fuel imports also eased due to lower demand from lockdowns and many people working from home.
The data for the nine months to September 2022 revealed exports at $9,981 million ($8,838 million in the same 2021 period), imports – $14,085 million ($14,938 million-2021) and the trade deficit -$4,104 million (- $6000 million- 2021). This would have been reduced somewhat since there was a recovery in worker remittances (in 2021, many transferred funds particularly from West Asia through informal channels which were not recorded through the established banking system). However, tourism numbers were still low and expected to fall short of the target of 800,000, far below the more than 2 million tourists reached in 2018.
If you examine all the above figures and more contained in the CB reports over the years, it appears that in 2018, we had a steady inflow of export and services earnings leading to a surplus in the balance of payments scenario. These numbers, however, took a hit in 2019 (impact on tourism from the Easter Sunday bombings), and in 2020, 2021 and now 2022 largely due to the pandemic and the economic crisis in 2022, the worst on record.
These numbers are not going to get better with a contracting economy (minus 6-7 per cent economic growth) in 2022 spilling over to 2023 (expected contraction of 3-4 per cent). Even if exports were back to normal, there is still a deficit in the balance of payments since some $3 billion is being ‘lost’ in worker remittances. This is because many migrant workers continue to use informal channels to transfer funds to their relatives back home, as they not only get a better rate in the informal market for their dollars, but also due to worries that the government will seize the dollars in their accounts, a concern vigorously dismissed by the banking regulator (CB) as a canard and that at no time would the authorities resort to such an exercise.
On the other hand, the authorities have been offering many incentives to migrant workers to use the formal channels to transfer their earnings. As I stretched my arms and legs after a ‘strenuous’ column piece, the conversation under the margosa tree was on similar issues.
“Aei aanduwa sankramanika kamkaruwanta viruddawa chodana karanne egollo adayama banku margayen lankawata evanne nae kiyala (Why is the government accusing migrant workers of not transferring their earnings through banks),” asked Mabel Rasthiyadu.
“Eh, egollange adayamen kotasak banku walin enne nethi nisa (That is because some part of their funds are not coming through these channels),” said Serapina.
“Mama hithanne egollo baya athi eh mudal walin kotasak aanduwa ganei kiyala. Eka ehema ne (I suppose they are afraid that their money would be seized which is not correct),” noted Kussi Amma Sera.
Political uncertainty and pegging the dollar at the Rs. 360 level are a reason why some exporters are likely to be holding their currency overseas. Maybe once elections are expected around March 2023, the situation would calm down and such funds would return to the country. Until then it’s touch-and-go for foreign exchange earnings.
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