Little has improved in Sri Lanka’s forex crisis as many exporters are reluctant to open letters of credit for large transactions, bankers say. “The Central Bank (CB) directions to maintain US dollar conversion rate at Rs. 203 has dried up conversions further,” a banker told the Business Times on Wednesday. He said only Usance or [...]

Business Times

CB directions further dry dollar conversions

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Little has improved in Sri Lanka’s forex crisis as many exporters are reluctant to open letters of credit for large transactions, bankers say.

“The Central Bank (CB) directions to maintain US dollar conversion rate at Rs. 203 has dried up conversions further,” a banker told the Business Times on Wednesday. He said only Usance or Deferred letters of credit (LCs) which are a specific type of LC that allows a predetermined credit period to the buyer / the importer are the ones being opened. The DA (Documents against Acceptance) and DP (Documents Against Payments) LCs are not being opened. In a DA, the documents of title to goods are delivered to the buyer merely on acceptance of documents for payment. The buyer would then make the payment on the due date of the maturity of the LC. DP LCs are types of LCs wherein it pays against documents on presentation. Both types of LCs are hard to come by.

Another senior banker confirmed this saying the export volumes are low. There is a shortage of dollars in the market, he said noting that the big transactions aren’t going through. “It is the same story as before – the suppliers aren’t happy as their contracts are not being honoured. There is no currency to pay them.”

If US dollars are coming in as inflows, the bankers say this dire situation will subside. They are banking on the CB Governor’s impending visit to West Asia to discuss some credit lines etc. The CB has plans to negotiate some oil transactions to support oil imports and food supplies, a CB official told the Business Times on Tuesday.

The regulator is currently arranging high-level discussions with respective Governments to secure short to medium term Government to government financing to buttress inflows as was mentioned in the six-month road map presented recently.

The CB is also negotiating short-term currency swaps with international counterparts.

Economists warn that these are very temporary measures saying the informal market created by the shortage of dollars is still functioning despite the regulator setting conversion rates. An exporter agreed noting that just on Monday he converted $10,000 at a rate of Rs. 225.

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