An Echelon Media Company
Monday December 11th, 2023

Sri Lanka to ban open account imports to curb Undiyal/Hawala

ECONOMYNEXT – Sri Lanka will shortly ban open account imports in a bid to stop the demand of unofficial transfers made through Undiyal/Hawala net settlement systems, Central Bank Governor Nandalal Weerasinghe said.

“We see that there is a large volume of money going through the Hawala/Undiyal systems,” Governor Weerasinghe said.

“Sometime it is for imports that are not essential.”

About 25 percent of the country’s 1.6-1.8 billion dollars a month are on open account and another 12 percent or so on documents against payment/documents against acceptance (DA/DP), central bank officials said.

“Some imports are made via open account or DA/DP terms instead of letters of credit (LCs) and settlements are made outside the banking system.

Weerasinghe said the Finance Ministry will shortly issue a gazette notice through the Import and Export Control Law.

“Some time will be given, after that a certificate will have to be given that settlements will be done by the banking system only. That is the type of mechanism that is being devised.”

The Import and Export Control Law was enacted in 1969 when economists/Mercantilists printed money through the islands intermediate regime central bank and got an administration led by then Prime Minister Dudley Senanayake into trouble, critics say.

Sri Lanka parallel rates for Undiyal transfers are around 400 rupees a dollar or higher compared to around 365 to the US dollar for the banking system where there are forex shortages.

Governor Weerasinghe said remmittances which were around 500 million US dollars a month had fallen to around 300 million a month, showing the volume that is by passed.

Another demand for parallel transfers came from parents sending money to children through the banking system. Weerasinghe said banks have been asked by the central bank to give small volumes of dollars needed for parent so that the demand for Undiyal falls.

The demand for DA/DP will only be allowed for exporters who bring raw materials in the future.

Governor Weerasinghe said the exchange rate was no longer being controlled and expatriate workers were also getting a fair rate through the official market. Therefore he wanted everyone to return to formal channels.

Forex shortages are caused by extra money printing by the central bank which drives up credit and imports.

Parallel exchange rates emerge when the rupees trying to rush out the country are greater than the inflows.

At the moment there is a surrender requirement (central bank purchases of dollars for new money despite the distressed exchange) which critics say tends to push the currency down.

Foreign exchange shortages and balance of payments crises are a problems peculiar to countries that operate ‘flexible exchange rate’ which are neither clean floats nor hard pegs.

A flexible exchange rate or a soft-peg collapses triggering balance of payments deficits and parallel exchange rates (the peg loses credibility) when economists print money to delay market interest rate rises coming from increases in private credit or budget deficits.

However Governor Weerasinghe had taken the right step by hiking policy rates to 14.50 percent from 7.50 percent and Treasuries yields are now around 22 percent, which will eventually curb bank credit which turn private savings into imports through construction or consumption spending.

Treasury bill and bond rates have also gone up, which will reduce money printed by the central bank which trigger currency pressure and divert more private savings to the budget deficit to pay salaries of state workers.

But concerns have been raised that any attempt to force food importers to open Letters of Credit before private credit falls and the forex shortages end, could lead to food shortages as is already found in the case of medicines and fuel.


Sri Lanka can trigger food shortages as in medicines with new trade controls: Bellwether

When banks stopped issuing letters of credit as they could not find enough dollars due to money printed by the central bank creating shortages of medicine and fuel, Sri Lanka’s essential goods importers kept the people fed with open account imports and settlements via Undiyal.

Undiyal allowed them to bid at a higher market rate, give a better rate to expatriate workers, and get priority foreign exchange to feed the people using the free market. (Colombo/April29/2022)

Comments (2)

Your email address will not be published. Required fields are marked *

  1. Ashan says:

    Please find fast what them carry 102 ton printing pepper to uganda

  2. A V Thomas says:

    Actually this is very good move and but in order to import through Banks we need sufficient foreign currency and a stable exchange rates to me more competetive in the market with less expensive to the public and good political atmosphere
    Good Luck Governor

View all comments (2)

Comments (2)

Cancel reply

Your email address will not be published. Required fields are marked *

  1. Ashan says:

    Please find fast what them carry 102 ton printing pepper to uganda

  2. A V Thomas says:

    Actually this is very good move and but in order to import through Banks we need sufficient foreign currency and a stable exchange rates to me more competetive in the market with less expensive to the public and good political atmosphere
    Good Luck Governor

Sri Lanka’s ousted utilities regulatory chief convinced he’ll be president

ECONOMYNEXT — Sri Lanka’s former public utilities regulatory chief Janaka Ratnayake, who was removed in May following a parliamentary vote, has confirmed that he intends to run for president.

Speaking to reporters on Sunday December 11 in the wake of an hours-long island-wide power outage the previous evening, Ratanayake said he will be the definite winner at a future presidential poll.

“I announced [my intention to run] officially on December 07, my birthday. I’m definitely coming as a presidential candidate. That’s not all, I’m the definite president at a future presidential election,” he said.

Ratnayake, in his first media appearance in months, was responding to questions about newspaper advertisements published on December 07 announcing his future candidacy.

Sri Lanka’s parliament on May 24 opted to remove the former chairman of the Public Utilities Commission of Sri Lanka (PUCSL), with 123 members voting in favour. This marked the first time a head of an independent government commission was sacked by Sri Lanka’s parliament.

Power & Energy Minister Kanchana Wijesekara, who had been at loggerheads with the regulatory chief, said at the time that the official had acted obstinately without the concurrence of fellow commission members.

The minister levelled five charges against Ratnayake, the first twoof  which were based on a February 10 verdict by the Court of Appeal rejecting an application filed by the offiical against an electricity tariff hike. Opposition legislators slammed the decision saying it undermined independent commissions.

Ratnayake’s presidential ambitions have been known for some time. A day before parliament voted to remove him, he told reporters: “If I can change the country, I will definitely join politics, because my intention is to serve the people and what is right.”

Ratnayake had blocked delayed a tariff hike in early 2023, resulting in losses to the state-run Ceylon Electricity Board (CEB), Minister Wijesekara claimed at the time. The PUCSL had als onot enabled tariff hikes for nine years, requiring its governing law to be changed, Wijesekera said.

Continue Reading

Sri Lanka wants university research to lead to commercially viable products

ECONOMYNEXT – Sri Lanka’s ministry of industries wants to ensure commercially-ready products and services are produced by university research, by facilitating partnerships with factories and entrepreneurs.

After a currency crisis, Sri Lanka’s government is in a drive to boost its trade balance by increasing exports.

“Our export basket hasn’t changed recently, partly because our small and medium entrepreneurs don’t have sufficient research and development facilities (like the multinationals) to innovate their products for the export market,” Additional Secretary of the Ministry of Industries, Chaminda Pathiraja said.

“At the same time, state universities and research institutes produce a large amount of research findings yearly, which end up sitting in those institutions; they don’t reach the industry,” Pathiraja said at a press briefing to announce a program on commercialization of new products and research, to be held tomorrow at the Waters Edge.

The networking forum will bring innovators and manufacturers together to focus on the commercialization of research for the value added tea, coir, spice, dairy products, gem and jewellery and packaging products industries.

“We want to encourage collaboration, through programs like our University Business League etc, so that the research output can be commercialized, and what is produced by our factories can increase in quantity and quality. We must focus on the export market.”

The objective of this program, he said, was to reduce the gap in acquiring innovators’ ideas and skills by the investors, and ultimately boost the manufacturing sector’s efficiency in alignment with the export market.

Continue Reading

Sri Lanka rupee opens at 327.00/50 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee opened at 327.00/50 to the US dollar on Monday, from 327.00/30 Friday, dealers said.

On the Colombo Stock Exchange, both indices opened up: The All Share Price Index 0.28 percent at 10,823, and the S&P SL20 0.35 percent at 3,113.85.

Bond yields were up.

A bond maturing on 01.08.2026 was quoted at 14.05/20 percent from 14.05/15 percent.

A bond maturing on 15.01.2027 was quoted at 14.05/20 percent from 14.10/25 percent.

A bond maturing on 01.07.2028 was quoted at 14.20/50 percent from 14.20/35 percent.

Continue Reading