ECONOMYNEXT – Sri Lanka expects to collect about 125 million US dollars a month from foreign exchange surrenders once efforts to track and monitor exporter conversions are fined tuned, an official said.
Sri Lanka required banks to surrender 10 percent of remittances converted to rupees and half of a mandatory 25 percent conversion of exporter (12.5 percent of total) proceeds.
“Going forward we expect at least 125 million per month to come in” Deputy Governor Dhammika Nanayakkara told reporters earlier this month.
“And 1.2 billion of money being added to the reserves as a result of the conversion of 25 percent and selling 50 percent of that to the central bank.”
The requirement came into effect in mid-February.
In February 2021, the central bank had bought 23.42 million US dollars from the interbank market and had not sold any dollars, data shows. In January 72 million US dollars were sold.
In January 2021 private credit grew only 6.1 billion rupees to 5,756.2 billion rupees, from the domestic banking system.
Authorities were now attempting to fine-tune the method of policing exporter conversions.
The requirement which came into effect in February mandate exporters to bring in dollars within 180 days of a shipment and convert 25 percent into rupees. Banks have to surrender 12.5 percent to the central banks.
The surrender requirement is not a blanket order imposed on foreign exchange dealers (like the remittance rule) but on individual exporters.
“Individually each exporter will be monitored by banks, because eventually they will be facilitated by a bank,” Nanayakkara explained.
:Because it is not only selling of the proceeds but also banks are now required to do a reconciliation of what went out and what came into Sri Lanka in account of the exports of goods.”
“The exporters can send the money anyway but the cash flows have to take place within a bank. At that point they will need to provide all the necessary details for the bank.”
Sri Lanka’s forex reserves dropped to 4,557 million dollars in February 2021, from 8,532.6 million dollars in August 2019, when liquidity injections to target an ‘output gap’ began, reversing previously prudent policy involving mopping up inflows to repay debt.
When a central bank purchases dollars, new liquidity is added to money markets, which can be loaned out by banks, unless the government sells Treasury bills and takes the money. Sri Lanka’s interbank excess liquidity was 181 billion rupees 171 billion rupees by February 25.
The central bank’s Treasuries stock was stable at 810 billion rupees, from 809 billion in the same period.
With weak private credit, most of the forex reserve outflows have taken place from the financial account. (Colombo/Mar14/2021)