Sri Lankan Shipping Agents Seek Dollarized Payments Amid Currency Problems


ECONOMYNEXT – Sri Lanka’s shipping agents have demanded dollarized freight charges, a report said as currency shortages intensified amid low interest rates and cash injections.

“The current shortage of US dollars in the banking system has made it difficult to convert any collection of freight rupees into US dollars in order to make payments to principals,” Sri Lankan newspaper The Sunday Times said, citing the Association of Ceylon shipping agents representing the lines as saying.

“Therefore, shipping companies are forced to require exporters to pay freight in US dollars. “

The shipping companies have asked the exporters to pay the freight in dollars and they in turn raised the issue with the Export Development Board of Sri Lanka.

CASA had warned that delays in payment principles could reduce freight allowances for Colombo compared to other countries where payments are made more quickly, which could make it difficult for exporters to meet customer deadlines, a said the newspaper.

“The average export freight value per month is US $ 100 million and it is essential for shipping agents to keep foreign funds held in the principal’s accounts to meet outstanding disbursements as well as to remit funds. funds to principals in accordance with agency agreements between principals and shipping agents, ”CASA said.

Sri Lanka printed around 1.6 trillion rupees from January 2020 to November 2021 and lost $ 5.6 billion in balance of payments deficits until October 2021.

About 350 billion was absorbed in an expansion of reserve currency and inflation.

Rupee holders are now struggling to convert to 200 dollars against the US dollar as its credibility has been lost due to two years of money printing to keep interest rates low.

The parallel exchange rate is now around 250 to the US dollar.

In the event of severe monetary instability, an involuntary dollarization of the market takes place.

Analysts have suggested that dollarization be encouraged to break through the barrier of converting dollars into rupees and vice versa, especially for the government.

Related

Sri Lanka should prepare to float and promote parallel dollarization: Bellwether

Allowing dollarized contract settlement avoids a “leap” between the monetary bases of Sri Lanka and the United States at a time when the anchor has lost credibility, said EN business columnist Bellwether.

Parallel dollarization

However, parallel dollarization in the form of taxes paid in US dollars, utility and energy bills paid in US dollars would also allow the government and importers to obtain US dollars without disrupting national reserve money. .

The central bank has ordered banks to sell it 25% of their dollars, which analysts say tends to create more rupees and further undermine the anchor, which is rather weak.

Key points

* Part of the assignment rule, allowing exporters to purchase SLDBs is correct. This will transfer dollars directly to the government without having to go through the rupee credit system. However, as some SLDBs were previously reimbursed in rupees, their appeal is now less than before.

* Likewise, exporters should be allowed to pay taxes in dollars. The government can give the same two additional rupees (a discount) to pay the dollar taxes now afforded to expatriate workers.

* Exporters and hotels can also pay their utility bills in dollars. This will keep power going to their factories and hotels. They can also pay dollars for fuel. This will allow fuel to continue to flow to their factories and trucks.

* Exporters and hotels should also be allowed to pay their suppliers in dollars. In this way, the problem with some inputs of the export industry will disappear.

* This includes tea exporters. Plantations have to buy chemicals and other inputs for which suppliers can no longer get money. Some export manufacturing companies also obtain inputs from local importers, including specialty chemicals whose agencies are locally owned.

* In fact, auctions of SLDB bonds are expected to take place on a weekly basis, like auctions of Treasury bills.

* Governor Nivard Cabraal’s suggestion to allow imports of cars in dollars and taxes payable in dollars is absolutely correct.