ECONOMYNEXT – Sri Lanka is getting around 1.45 billion from hard goods exports and 251 million from services, a month, central bank officials said as authorities started to police forex earnings during the latest currency crisis.
“Export conversion we are monitoring the situation and there is a monitoring mechanism in place since July with the customs and financial floors,” Governor Nandalal Weerasinghe said.
“On the information we have received not the full amount is being converted not the full amount is being converted in to rupees.
“It is less than what we expected.”
From the 1450 million dollars of export earnings in October, less than 25 percent, Governor Weerasinghe said.
Out of the total 1,450 million dollars 1,199 was for goods and 221 was for services, Deputy Governor Yvette Fernando said. On the goods side conversion was 326 million dollars of 23 percent.
1199 million dollars were hard goods and only 326 million dollars was converted,
“Exporters are saying their value addition has increased so they should be able to convert more than 25 percent,” Weerasinghe said.
He said the apparels sector say they have a value addition of 55 percent and tea and rubber about 95 percent.
“There is a public perception that exporters are not converting but without having data we can’t make that assumption,” Weerasinghe said.
“That’s what we have requested the exporters to please share data with us so they could save their reputation as well. Our foreign exchange department is authority who are collecting information.”
Countries with central banks that do not print money and do not have soft-pegs or flexible exchange rates do not care about whether exporters convert or not. However exporters have to declare income and pay taxes as required.
Operating exchange control departments are also a cost to the tax payer.
The UK, which operated a global currency for more several centuries and a former empire, operated exchange controls for 40 years after macro-economists started using flexible policy to manipulate rates and for stimulus after the 1930s, which ended in 1979s.
“..[T}here will from tomorrow be full freedom to buy, retain and use foreign currency for travel, gifts and loans to non-residents, buying property overseas and investment in all foreign currency securities,” The Chancellor of the Exchequer Geoffrey Howe told parliament in October 23, 1979.
“Portfolio investment will be wholly freed, and the requirement to deposit foreign currency securities with an authorised depositary is abolished. Foreign currency accounts can be held here or abroad.
“Passport marking for travel funds can now be abolished The necessary Treasury orders are being laid this afternoon.
“The removal of controls will lead to public expenditure savings of about £.14½ million a year, which represents the current cost of about 750 staff at present employed on exchange control work at the Bank of England and about 25 at the Treasury.
“Exchange controls have been with us in one form or another for just over 40 years.
“The essential condition for maintaining confidence in our currency is a Government determined to maintain the right monetary and fiscal policies. This we shall do.
“The staff at present employed on exchange control are in most cases staff of high skills and qualifications, for whom I have no doubt other opportunities will be forthcoming in areas of the economy where their services will be much needed and well used.”
Increasing regulations on exporters which are not found in countries without flexible monetary policy may further discourage foreign investment to Sri Lanka according observers.
Exporters generally try to hold back after Sri Lanka’s central bank prints money to suppress rates through a below market policy rate and trigger forex shortages while importers try to cover early.
If a float succeeds after a rate hike the opposite happens.
Governor Weerasinghe has hiked rates and already it is expensive to borrow in rupees and hold dollars but some are willing to do so due to fears of further depreciation rather than for actual profits, according to some market participants.
A clean float which leads to an appreciation of the currency however tends to reverse the flows and reduce interest rates. At the moment however there is surrender rule forcing the currency down. (Colombo/Nov24/2022)