Dwindling Dollar/Rising Energy Costs: Exporters in a Bind

By Ishara Gamage | Published: 2:00 AM Sep 21 2021

By Ishara Gamage 

Top Bankers and Exporters told Ceylon FT that they expect a solid solution from the Government in the next two weeks to end the prevailing volatility in the foreign exchange market. “With the Central Bank of Sri Lanka’s (CBSL) request to limit the exchange rate between Rs 200-203, the foreign exchange market has become very volatile. Many exporters are delaying bringing their export earnings to the country and also a clear decline in remittances. 

As a result, as bankers we are facing a severe dollar deficit” bankers said. They also expressed confidence that the new Governor of the CBSL, Nivard Cabraal, would take steps to overcome this volatility and bring market stability through the interim roadmap to be presented on the 1st. Meanwhile Speaking to Ceylon FT, Exporters have expressed their concerns over the shortage of foreign exchange in the forex market. “ We as exporters are finding difficulties to pay our import bills for the raw materials imported, there has not been adequate direction provided by “Powers that Matter” for officials to facilitate exporters,” they said. 

Further, the regulatory measures to convert export proceedings immediately, which are required due to the current situations in the market, dampens the incentive for the exporter to earn more foreign exchange, since there is an immediate loss incurred, as opposed to the possibility of gains in the future. Possible raising of the level of conversion of export proceeds from 25% to 45-50% is also likely to hurt the motivation of exporters to remain in the business. Other measures proposed such as narrowing the differential between $ and LKR interest rates also need clear understanding and impact. 

Sri Lanka’s appeal sector exporters have so far invested $ 60 million in Sri Lanka Development Bonds in support of the Government. But bankers allege that it has eroded the dollar reserves of their Banks. Rising energy costs should also be considered. Wholesale prices for gas is said to be up by 250% since January 2021. Prices have increased by some 70% in August 2021 alone. 

Many commentators attribute this rising trend to the global economy re-starting after the COVID-19 slowdown. It is possible that the price increase is temporary and will unwind by itself but the Government should be ready to intervene if necessary. Among other matters that will impact export performance is the response to the RFP for the FX Loan that was floated by the Ministry of Finance at the start of September with a three-week window closing on 21 September 2021. If the response from the international debt capital markets is favourable, then there is likely to be some easing of the dollar flow to undertake essential imports in support of exports, experts said.

By Ishara Gamage | Published: 2:00 AM Sep 21 2021

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