Undiyal rate in grey foreign exchange market dropping

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Soon after the announcement made on the regularisation of the Open Account Payment terms a few days ago, the Undiyal rate in the grey foreign exchange market has started to fall, the Finance Ministry said yesterday.

The statement also said this trend is expected to continue, and it will also help more foreign exchange flows into the banking system, thereby increasing funds available for essential imports and stabilising the exchange rate.

Regulations have been promulgated under the Imports and Exports Control Act, No. 1 of 1969 and published in Gazette No. 2278/21 dated 6 May 2022 to regulate selected payment terms related to importation of goods with a view to curb opportunities for under-invoicing at the time of Customs clearance of imported goods. 

As per these Regulations:

Operation of the Open Account Payment terms has been limited to exporters and indirect exporters. 

Documents against Payment (DP) and Documents against Acceptance (DA) terms have been regularised to use on foreign exchange available basis.

Director General, Sri Lanka Customs has been instructed to keep a system in place to monitor and reconcile the declared import value at the time of Customs declaration by the importers and settlement value of these import bills in collaboration with the respective importers’ banks.

These Regulations will curb opportunities for the importers to under-invoice (declare lesser value than the actual value of the imported consignment) to benefit from the lesser payment of duties at the time of Customs clearance and use of grey foreign exchange market (Undiyal/ Hawala method) to settle the undeclared part of the import bills.

The regularisation of Documents against Payment (DP) and Documents against Acceptance (DA) will contribute to discourage importation of non-essential and non-urgent goods and make foreign exchange available in the banking system for importation of essential commodities in the present situation.

It is also noted that since the Documents against Acceptance (DA) terms, which is working similar to the Open Account Payment terms, allows importers to import goods on credit basis, they make upfront payment through the Undiyal method. Therefore, the DA terms need to be stopped, the statement concluded.