ECONOMYNEXT – Sri Lanka main business chambers say their importers, banks and are being crippled by foreign exchange shortages and some may have to relocate overseas and foreign investors will also be discouraged.
Sri Lanka is facing forex shortages and parallel exchange rates after rupee liquidity injections made to keep interest rates low had hit the credibility of a soft-peg with the US dollar. Enforcement of a 200 to the US dollar peg with partial convertibility had led to forex shortages.
“This will affect in maintaining the credibility of doing business with our suppliers and business associates with whom we transact in foreign currency,” the chambers said in a joint statement.
“At present we face the difficulties in obtaining foreign currency to finance much needed imports due to the prevailing situation with regard to the lack of availability of foreign currency.
“These range from not being able to obtain letters of credit to the inability to clear goods that have already arrived in the port due to delays experienced in honouring letters of credit.
“We are concerned that while the importers themselves will face immense financial costs in the form of demurrage and other logistics related costs, it will also affect longstanding relationships built with suppliers resulting in a serious and irreversible loss of confidence.”
Indirect exporters and firms providing support services for exports are also hit.
The chambers urged the government to finalize the negotiations for short term funds through swaps and other arraignments.
“If these actions as envisaged by the recently announced Roadmap by the Central Bank of Sri Lanka are not materializing within the anticipated time-frames, we earnestly request the Government to reconsider other alternative courses of action available to the country such as engaging with IMF to explore the funding options they can offer.
Analysts have said Sri Lanka will have to hike rates to slow domestic credit, suspend convertibility and float the currency to end forex shortages.
The full statement is reproduced below:
Joint Chambers express concern on the impact of currency shortage
We wish to draw the attention of the Government to the difficulties faced by our member companies and the broader private sector in obtaining foreign currency to finance much needed imports due to the prevailing situation with regard to the lack of availability of foreign currency.
This will affect in maintaining the credibility of doing business with our suppliers and business associates with whom we transact in foreign currency. At present we face the difficulties in obtaining foreign currency to finance much needed imports due to the prevailing situation with regard to the lack of availability of foreign currency.
These range from not being able to obtain letters of credit to the inability to clear goods that have already arrived in the port due to delays experienced in honouring letters of credit. Further, this impact is also felt by indirect exporters and firms providing support services for exports.
We are concerned that while the importers themselves will face immense financial costs in the form of demurrage and other logistics related costs, it will also affect longstanding relationships built with suppliers resulting in a serious and irreversible loss of confidence.
Importers are also unable to secure orders due to the inability to agree on a firm payment schedule as required by suppliers. This will seriously impede the availability of essential products especially during the upcoming festive period during which consumer demand is typically high for most products.
This can cause great hardship to the public at large and may result in a significant increase in the cost of living.
Further, the banking system will also face difficulties as a result of not being able to meet the needs of their longstanding customers and could eventually experience a serious loss of reputation if they are compelled to dishonor committed payments.
The Government will also experience a loss of revenue due to a drop in import duties at a time when increasing government revenue is of paramount importance.
While appreciating the efforts being taken by the Government to mobilse short term funding from a number of sources by way of swaps and credit lines, we urge the Government to finalise the negotiations on some of these arrangements and announce them with certainty as soon as possible with a clear indication when such facilities will become available.
If these actions as envisaged by the recently announced Roadmap by the Central Bank of Sri Lanka are not materializing within the anticipated time-frames, we earnestly request the Government to reconsider other alternative courses of action available to the country such as engaging with IMF to explore the funding options they can offer.
If these conditions that are critical for ease of doing business do not improve, we are concerned that it will result in many local companies looking to relocate their business operations overseas.
It will also seriously constrain our ability to attract Foreign Direct Investment(FDI) into the country.
Therefore, we wish to urge the relevant authorities in Government to take quick remedial action to avoid the negativeconsequences as outlined above and put Sri Lanka back on track to stage a strong post-pandemic recovery to reach vistas of prosperity and splendor as envisioned.