The Sri Lankan government has decided to relax the rules governing the repatriation of export earnings, responding to requests from exporters, their representatives, and various government agencies.
This decision comes despite the ongoing issue of some exporters stashing foreign currency in foreign banks, a practice that has been depriving the country of much-needed foreign exchange since 2009.
These fraudulent actions have been facilitated by the lack of strict enforcement of the Foreign Exchange Control Law, previously known as the Exchange Control Act, which mandates that export earnings be returned to Sri Lanka within six months.
The new regulations, titled ‘Rules 01 of 2024,’ were published in the Extraordinary Gazette on 1 July 2024 and are set to be enacted under the Sri Lanka Central Bank Act No. 16 of 2023.
These updated rules aim to provide greater flexibility for exporters in managing their earnings amidst the current economic challenges.
The proposal, presented by President Ranil Wickremesinghe in his capacity as the Finance Minister, received approval from the Cabinet of Ministers and is now awaiting final approval from Parliament.
The issue of exporters hoarding foreign exchange overseas has resulted in significant losses for Sri Lanka. The Central Bank has revealed that nearly $3 billion in export earnings were hoarded abroad last year alone. A report by an official think tank indicates that Sri Lanka has lost approximately $53.5 billion over the past 12 years due to this practice.
In response, the Central Bank’s revenue monitoring unit has been actively tracking export conversion and dollar earnings using a mechanism developed in collaboration with customs since July 2022. However, data collection has been challenging, with only 57 percent of exporters responding to a questionnaire sent by the Central Bank. This has made it difficult to assess the full extent of the issue.
Some traders have been found to manipulate the declared value of imports and exports, either overpricing or underpricing goods to transfer money overseas. The Central Bank issued regulations in February 2021 to oversee export earnings repatriation, requiring all licensed banks to submit reports to the Director of the Foreign Exchange Department.
Despite these efforts, the total merchandise export value is still based on statistical values submitted to Customs, which may not accurately reflect actual earnings.
The Central Bank emphasizes the need for a shipment-wise export remittance monitoring system, developed by the ICT Division of Customs, to address these discrepancies.
Sri Lanka Customs, governed by a 150-year-old ordinance, faces challenges in dealing with free trade agreements and export valuation, leading to issues such as the undervaluation or overvaluation of commodities like tea and products under the India–Sri Lanka Free Trade Agreement.
