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Floating currency: Depreciating rupee not really helping exporters 

a year ago

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  • Buyers lack confidence in SL: CTTA Chair
  • High prices damage Ceylon Tea brand
  • Indian tea gains opportunity as gap filler
  • Inflation hits industry competitivity
By Vinu Opanayake Despite the Sri Lankan Rupee’s sustained plunge, pushing Rs. 300 against the US Dollar, exporters are not gaining any significant benefits, The Sunday Morning learns. This is due to the depreciating rupee dramatically increasing the production costs of manufacturers.  Speaking to The Sunday Morning, Colombo Tea Traders’ Association (CTTA) Chairman Jayantha Karunaratne stated that exporters were initially lobbying for the Sri Lankan Rupee to be floated during the period it was forcibly kept below Rs. 203 by the Central Bank of Sri Lanka (CBSL).     According to him, originally the floated rupee had brought in benefits for exporters, however, with the rupee going above 300 against the US Dollar, the situation has gone out of control. He insisted that mechanisms be brought in either to control or monitor the dramatic flow of exchange rates.  “The biggest concern is the lack of confidence. If there is confidence created or restored in the business community, foreign direct investors, and foreign donors, that itself would sort out most of the issues. Whatever the Government decides to do now will not work if nobody has confidence in the country,” he added.  Karunaratne noted that mismanagement of policies had infused fear in people that the current volatility and crisis could persist or occur again, thereby further hampering confidence in the country. Ceylon Tea He stated that with the depreciating rupee, market prices of Ceylon Tea had hit their highest levels, resulting in buyers questioning why the prices of Sri Lanka’s tea products were so high. Higher tea prices have also led buyers to rethink buying Ceylon Tea and they are considering other countries at the moment, according to him.  Karunaratne stated that Sri Lanka had to import raw materials including packaging items for Ceylon Tea exports. With inflation, prices of these raw materials have increased manifold, forcing exporters to increase prices of final products as well.  India’s industry stakeholders and experts are being quoted in Indian media reports that the mounting economic woes in Sri Lanka, which is a major player in the global tea market, may provide opportunities for Indian tea exporters and that the island nation is set to witness a significant decline in production and shipments this year. Sri Lanka produces around 300 million kg of tea annually and is predominantly an orthodox tea producer. The country exports around 97-98% of its annual output, rating agency ICRA Ltd.’s Vice President Kaushik Das told the media last week.  Sri Lanka accounts for around 50%, if not more, of the total global trade of orthodox tea and exports the beverage to mostly West Asian countries such as Iraq, Iran, and the UAE, and North African destinations like Libya along with Russia and Turkey, he said. “A significant fall in Sri Lanka’s tea production will have an impact on the global market and also provide an opportunity for Indian exporters to fill the gap,” Das told foreign media channel PTI.  Apparel  Meanwhile, Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawrence speaking to The Sunday Morning stated that in terms of apparel companies, there were two types of costs involved – rupee costs with local parties and dollar costs with international parties.  “When the rupee depreciates, yes, it is true that it brings in more rupees into the company. However, one of the impacts of devaluation is inflation. We have seen massive inflation in terms of fuel and food, and it has made our transport very expensive. All our local costs have also shot up due to inflation,” Lawrence stated.  Speaking further, he noted that the general policy was that a depreciating rupee would bring in more money to exporters, however given the rapid pace of depreciation, exporters were unable to enjoy the benefit.  He stated the cycle of depreciation happened very quickly, within a period of a mere two to three weeks, as it hit a fresh century after being floated.  Further, he noted that be it electricity, water, or fuel, costs had gone up considerably.  However, he said that the depreciating rupee had helped manufacturers to put more money in the hands of workers.  Commenting on how the market was faring, Lawrence stated that buyers were concerned but appeared to be very loyal to Sri Lanka as during hard times, Sri Lanka had always stood by them.   “The industry is looking at how we can address these issues. We are going into the New Year now and when we come out of it there could be more diesel in the system as the Ceylon Petroleum Corporation (CPC) and Lanka Indian Oil Corporation (LIOC) are in the process of sorting it out,” he added. Moreover, he stated that if there was a sufficient amount of diesel, they could sort out the rest of the issues facing exporters.   Exporters ring alarm bells At a recent press conference, exporters warned that their industries which collectively earn about $ 16.7 billion each year through merchandise and service exports would come to a standstill if the current situation continues.   Essential Food Importers Association Spokesman Nihal Seneviratne stated that the depreciating rupee had made it very hard for the importers as well, with pendings payments to international suppliers becoming more expensive by the day.   Meanwhile, the Sri Lankan Rupee depreciated further against the US Dollar, hitting a record low on Friday (8). According to the Central Bank’s official exchange rates for the day, the selling rate of a US Dollar now stands at Rs. 321.49. The buying rate of the US Dollar is listed as Rs. 310.88.  On Tuesday (5), the official selling rate of US Dollar exceeded the Rs. 300 mark for the first time in Sri Lankan history.  

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