Exporters question forex rule as trade deficit widens

The local export fraternity has questioned the rationale behind a new foreign exchange regulation that significantly shortens the period the firms can retain the export earnings in foreign currency, warning that the measure risks increasing costs, disrupting business planning and sending mixed signals to a sector the country is relying on to drive economic recovery.

The concerns, raised by the National Chamber of Exporters (NCE), follow a recent Central Bank directive requiring the exporters to convert the foreign currency proceeds held in the designated accounts by the 10th day of the following month, substantially reducing the period available to retain the export earnings in foreign currency.

While the exporters reiterated their commitment to repatriating the export earnings, in line with the existing regulations, they questioned why a policy affecting one of the country’s main foreign exchange earning sectors had been introduced without broader stakeholder engagement.

“The issue is not repatriation. The exporters have consistently complied with those requirements. The concern is the shortened retention period and the absence of consultation before the measure was introduced,” the NCE said.

According to the NCE, many exporters retain foreign currency balances to finance imports of raw materials, machinery, spare parts and other production-related requirements. Businesses also use such funds for overseas marketing activities and to meet foreign currency-denominated obligations, including loan repayments.

The NCE noted that many export industries operate on seasonal procurement and production cycles, meaning the export proceeds received today may only be required several months later to finance the future orders.

As a result, the mandatory conversion could force the firms to convert foreign currency earnings into rupees and subsequently repurchase dollars when the payments become due, exposing them to exchange rate fluctuations, bank spreads and additional transaction costs.

The concerns emerge even as the exports continue to expand. Total exports during January-April 2026 rose 4.3 percent year-on-year to an estimated US $ 5.78 billion, while merchandise exports increased 4.8 percent to US $ 4.52 billion.

However, imports have grown at a much faster pace. Total import expenditure climbed 25.2 percent to US $ 8.23 billion during the period, including US $ 4.7 billion worth of intermediate goods and US $ 1.52 billion in investment goods.

The NCE said a more flexible framework should be considered, allowing the exporters to retain foreign currency, where future requirements can be demonstrated, including for imports, machinery purchases and foreign currency loan repayments.

While acknowledging the importance of strengthening Sri Lanka’s foreign exchange position, the exporters argued that the measures aimed at improving liquidity should not place a disproportionate burden on the country’s primary generators of foreign exchange.

The NCE said foreign exchange management policies would be more effective if developed in consultation with the sectors directly affected, warning that preserving export competitiveness remains critical as Sri Lanka seeks to accelerate export-led growth.