From left to right: Deputy Governor Yvette Fernando and Governor Dr. Nandalal Weerasinghe
Photo by Pradeep Pathirana

  • Says these rules are necessary given dire need for dollars for essential imports

The Central Bank revealed last week that it collects up to $300 million each month from exporters’ dollar conversions and surrender requirements, which goes a long way towards providing dollars to finance essential imports such as fuel. , cooking gas, medicines and other products that are in
shortage.

They said that removing this requirement could cause even the small amount that is collected to be lost and thus aggravate the dire situation prevailing in the country.

Exporters of goods and services in Sri Lanka are required to repatriate all their export products within 180 days from the date of shipment or provision of services, and are required to convert their residual products after making several payments due be made in foreign currencies on or before the 7th of the following month.

Banks are then required to sell 25% of this collected foreign currency to the Central Bank, a requirement that has been relaxed to 50% in effect until mid-April.

But, critics argue that such requirements could leave less foreign exchange liquidity in the banking system, which could then be used to finance imports, and would deter exporters and other service providers from fully repatriating their earnings, making the the Central Bank counter-productive.

“What you are asking us is to remove the conversion requirement. But, why we have this requirement is to have this money for these essentials,” the Central Bank Deputy Governor said. , Yvette Fernando, in response to a question about why this requirement is not waived.

“And the Central Bank is also demanding that this 25% mandatory sale requirement be maintained as these funds are also used for essential imports,” she added, explaining the reason the rule is in place.

Weighing in on the issue, Central Bank Governor Dr Nandalal Weerasinghe said he was ready to review the rules if evidence shows that the current rules act contrary to desired expectations of getting more dollars.

“The end result is what the priority is now; whether we use these currencies for essential imports or let bank balance sheets improve,” Dr Weerasinghe said. “For now, the priority is at least to protect the $300 million that is coming.”