Export earnings improve to average USD 985 mn | Daily News
Merchandise sector during 8 months ending August 2021

Export earnings improve to average USD 985 mn

Whether exporters comply with 100% repatriation of export proceeds under question

Sri Lanka’s merchandise export sector has shown a notable improvement in 2021 compared to the pandemic-affected 2020 as export earnings have averaged USD 985 million during the eight months ending August 2021 as against USD 837 million in 2020.

In addition the average earnings have amounted to USD 1,064 million during June-August 2021. “This is an appreciable development as the merchandise export sector (comprising diverse products) is the largest foreign exchange earner in most countries, including Sri Lanka,” the Central Bank said.

Sri Lanka has had a trade deficit each year since 1977, and the gap between merchandise imports and exports is typically financed by other inflows to the external current account (tourism, workers’ remittances and other services inflows), and financial inflows.

“In this background, some recent developments in the foreign exchange market have raised several concerns, particularly as some of these typical avenues of foreign exchange inflows have been affected due to pandemic-related pressures.”

Compared to the monthly average exports of USD 985 million during the eight months ending August 2021, the monthly average repatriation of export proceeds during July/August 2021 has been USD 640 million as reported by banks (financial flow). “Accordingly, there has been a significant gap of USD 345 million between these two figures. This observation therefore, raises the serious question as to whether exporters comply with the regulation on 100% repatriation of export proceeds. Due to an undue speculation on exchange rate movements, there has been a reluctance to convert export earnings during the period from January 2020 to July 2021, thereby limiting inflows to the domestic foreign exchange market, which situation has then resulted in a buildup of foreign currency deposit balances with the banking sector by a significant USD 1.9 billion.”

“In addition, with low rupee interest rates, some exporters have found it more lucrative to borrow and import to meet their input requirements, leading to further tension in the domestic market.”

As per the data available, it would also be noted that if there had been a 100% repatriation and 100% conversion of export proceeds, the monthly export foreign exchange flow into the domestic market would have been USD 985 million, and with the average expenditure on imports of USD 1,670 million, that would have resulted in a monthly average gap of US dollars 685 million. This could have been easily financed using other foreign exchange inflows into the country. Based on these past statistics in general, and the experience during July/August 2021 in particular, CBSL says the monthly average gap between the conversions of export proceeds with an incomplete repatriation and expenditure on imports has been quite alarming.

“It would also be fair to state that there is a necessity for a country to ensure that the foreign exchange generated through export activities are duly repatriated into the country and converted into its currency.”


Add new comment