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Why Sri Lanka’s exporters are gloomy

Despite credit being readily available, Sri Lanka’s exporters say they don’t want to borrow because they can’t expand their businesses in the present economic conditions - despite the end of the war.

“Exporters are not borrowing because they are not expanding,” National Chamber of Exporters (NCE) President Sarath de Silva said last week.

High electricity tariffs, the loss of trade concessions from the EU and US, and a stronger rupee made it difficult to survive in the global export market, he said.

(See reports in The Island and the Sunday Times)

Exporters had no need to borrow to finance expansions that were simply not taking place, de Silva added.

Despite the end of the war, NCE members felt that opportunities were slipping away with government policy weighing down the export sector, The Island reported separately.

The rupee

The central bank has been holding the rupee at around 112 to the dollar, the highest since December 2008, when Sri Lanka was in the midst of a balance of payments crisis.

The high rupee makes Sri Lanka’s exports expensive, relative to competitors in other countries.

But Sri Lanka insists the rupee must appreciate. Central Bank governor Nivard Cabraal said last month it was in ‘the national interest’.

What does that mean? A stronger currency help ease the cost of living in an import-dependent economy.

"We thought by depreciating the rupee we were doing a great job, that export income goes up, but where did that get us?" he asked.

"Each year our debt increased, our balance of payments became negative every year and our macro-economic fundamentals became weaker and weaker."

Sri Lanka’s dilemma is that making exports more competitive (cheaper) by weaking the rupee also makes the cost of imports, including food and fuel, expensive.

“It's like somebody wants sunshine and someone else wants rain (at the same time)," Cabraal says.

And Sri Lanka's exporters are not generating enough revenue to make the government prioritise them over keeping imports cheap.


Meanwhile, exporters are asking the government for some breathing space to strengthen their weakening positions by deferring an electricity tariff hike for another year or two, The Island said.

Sri Lanka has some of the highest electricity tariffs in south Asia. The state-run electricity company has been making losses for years and, under IMF pressure, Sri Lanka is trying to end the Ceylon Eletricity Board's reliance on subsidies.

Unhappiness amongst Japanese firms already invested in Sri Lanka is dissuading others from doing so, LBO quoted Hirofumi Hirano, head of a visiting delegation of Japanese parliamentarians as saying in December

"When Japanese investors come to Sri Lanka they want to see how existing companies are doing. If the feedback is not good it will be difficult to attract investment."


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