Sri Lankan apparel exporters urge forex rule reform: Reports

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Sri Lanka’s apparel exporters have urged the central bank to abolish a compulsory conversion rule for export proceeds, citing the rupee’s allowance to appreciate amidst a deflationary monetary stance.

This is as per media reports, which added the central bank previously imposed restrictions on shifting dollar proceeds between banks during inflationary periods, but these have now been lifted.

Apparel exporters of the island nation have appealed to the central bank to end a mandatory conversion rule for exports proceeds as the rupee is allowed to appreciate with deflationary monetary policy.
They stressed the urgent need to eliminate the mandatory conversion of export proceeds to sustain fair trade and ensure industry profitability.

The Joint Apparel Exporters Association welcomed the central bank’s decision, emphasising the importance of removing barriers to foreign exchange movement between commercial banks even as it noted the resilience of the export sector amid challenges, highlighting efforts to transition to lean manufacturing, diversify products, and explore new markets.

However, the apparel exporters stressed the need to eliminate the mandatory conversion of export proceeds to sustain fair trade and ensure industry profitability.

The central bank, engaging in deflationary domestic operations, has generated a balance of payments surplus. With the flexibility of deflationary monetary policy, the central bank can opt to appreciate, maintain, or depreciate the rupee as needed.

Historically, Sri Lanka struggled to maintain a stable currency anchor post-1978, resulting in currency depreciation and inflation due to conflicting operational frameworks.

While an appreciating currency may strain exporters’ margins, stable exchange rates can mitigate social unrest. However, rapid appreciations hinder investment and productivity growth even as depreciation offers temporary export benefits but risks social unrest and inflated real savings.

It may be mentioned here Sri Lanka faced severe currency pressure and collapse in 2022, exacerbated by stringent import controls.

Fibre2Fashion News Desk (DR)





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