Chamila*, senior finance manager of an export company whose parent company is beyond Asia, has been under tremendous pressure when his parent company asked him to come up with measures to keep most of the company’s dollar earnings outside Sri Lanka.
The request came not because Sri Lanka’s central bank made it mandatory to bring and declare all the export earnings to the island nation.
But because the central bank has forced them to convert all their export proceeds from dollars to rupees amid an increasing risk of sharp depreciation as the central bank has ordered the exchange to be 200 while the gray market rate is around 240 to 250 rupees.
The central bank is unable to enforce maintain the 200 rupees to the US dollar peg as it is simultaneously printing money to enforce a 6.0 percent policy rate with budget deficit close to 10 percent of gross domestic product and inflation running at double digits.
The central bank is rapidly running out of foreign reserves to exchange for the newly printed money. As interventions were reduced, parallel markets have developed.
As monetary instability increased over the past two year in the process of maintainingthe policy rate with liquidity injections,new controls have on individuals and companies.
Due to the conversion rule, Chamila’s company is no longer able to run a dollar balance sheet, as it would do as a foreign investor in another country.
“It makes our parent company nervous. We can convert it if the gap is low. But there is a 50-rupee gap for each dollar,” Chamila told EconomyNext, asking not to identify him and his company citing adverse repercussions.
“The idea is to keep the dollars outside Sri Lanka as much as possible. Our past experience is that either gradual depreciation or sharp devaluation will follow after the central bank holding a fixed rate for a long time. And we have never seen such a gap between the official and black market exchange rates,” he said.
Now his parent company has decided to increase the royalty fee and related costs in foreign countries and deposit dollars in the countries in which it has branches and have better central banks requiring no exchange controls.
*Not revealed due to expected repercussions
Economynext
The request came not because Sri Lanka’s central bank made it mandatory to bring and declare all the export earnings to the island nation.
But because the central bank has forced them to convert all their export proceeds from dollars to rupees amid an increasing risk of sharp depreciation as the central bank has ordered the exchange to be 200 while the gray market rate is around 240 to 250 rupees.
The central bank is unable to enforce maintain the 200 rupees to the US dollar peg as it is simultaneously printing money to enforce a 6.0 percent policy rate with budget deficit close to 10 percent of gross domestic product and inflation running at double digits.
The central bank is rapidly running out of foreign reserves to exchange for the newly printed money. As interventions were reduced, parallel markets have developed.
As monetary instability increased over the past two year in the process of maintainingthe policy rate with liquidity injections,new controls have on individuals and companies.
Due to the conversion rule, Chamila’s company is no longer able to run a dollar balance sheet, as it would do as a foreign investor in another country.
“It makes our parent company nervous. We can convert it if the gap is low. But there is a 50-rupee gap for each dollar,” Chamila told EconomyNext, asking not to identify him and his company citing adverse repercussions.
“The idea is to keep the dollars outside Sri Lanka as much as possible. Our past experience is that either gradual depreciation or sharp devaluation will follow after the central bank holding a fixed rate for a long time. And we have never seen such a gap between the official and black market exchange rates,” he said.
Now his parent company has decided to increase the royalty fee and related costs in foreign countries and deposit dollars in the countries in which it has branches and have better central banks requiring no exchange controls.
*Not revealed due to expected repercussions
Economynext
