The cash-strapped coalition government last week ordered the country’s exporters to bring back their moneys into the country immediately or face consequences – a move which was not even seen during the worst years of foreign exchange crises. A gazette notification issued by the Finance Ministry said all export earnings retained abroad as at April 01, 2016 must be brought back within a month while such earnings received on or after April 01, 2016 must be repatriated within 90 days from the date of exportation of goods.
Further, such proceeds may be credited to any foreign currency account maintained in the name of the exporter in any domestic banking unit of a licensed commercial bank or sold to a licensed commercial bank.
The gazette notification (extraordinary) No: 1960/66 dated April 01, 2016 effectively repeals exemptions granted in respect of such foreign receipts in the extraordinary gazette notification No. 759/15 dated March 26, 1993. According to economists, the latest move to prop up the country’s ailing financials is a slap on the free market system and a measure in the direction of a controlled economic environment, which is generally not in cohesion with policies of the right-wing United National Party (UNP).
The call to repatriate exporters’ moneys comes in the wake of “no question asked” policy of the Finance Minister Ravi Karunanayake, where he invited foreign investors to park their funds with Sri Lanka. Speaking to our sister newspaper The Sunday Times, the Professor of Economics at the Colombo University Sirimal Abeyratne had said the pressure was building up on the rupee and the latest move implied that the forthcoming support from the International Monetary Fund (IMF) might be insufficient to tackle the foreign exchange crisis. Professor Abeyrate further commenting on the consequences of the move said this would further erode the investor confidence due to the unpredictability in economic management. Meanwhile, former Deputy Governor of the Central Bank, Dr. W. A. Wijewardena said the move showed the desperation of the government.“Even in the worst of times of foreign exchange crises – 2001 (during Chandrika Kumaratunga’s regime) and 2009 (under Mahinda Rajapaksa), the Central Bank resisted pressure to control export proceeds,” Wijewardena was quoted as saying to The Sunday Times. He further cautioned the move would act in contrary to the intention of the government. “It will frighten everybody and force people to keep money abroad and underinvoice earnings (inserting bogus figures)”. According to Central Bank data, Sri Lanka’s exports have fallen by 2.5 percent to US $ 893.9 million in January 2016 from a year ago, due to weaker commodity prices. Worker remittances, although have increased by 8 percent to US $ 1.12 billion during the first two months of 2016, it is expected to come under pressure as the Gulf economies are cutting their budgets due to lower global oil prices amid a possible deal to freeze production that fell apart between the OPEC and non OPEC countries last week. In this backdrop, the pressure on the currency and reserves is imminent and the recent foreign outflows from government securities and debt repayments could exacerbate the economic woes.