The reality behind Sri Lanka's Export earnings numbers

It has been reported that Sri Lanka recorded USD 5 Billion worth of exports in the first 5 months of 2022. This number came from Sri Lanka Customs based on values declared by the exporters in the export CusDecs (Customs Declaration Exporter submits). Even though these numbers are being reported at their face value, There are two main reasons we shouldn’t take them as such.

1. Export valuation Errors

Sri Lanka Customs works with the powers vested under the Customs Ordinance, the Ordinance covers only the import valuation and not the export valuation, It shouldn’t come as a surprise since it is a 150+-year-old document with minimum amendments. This is a serious problem when dealing with free trade agreements and also creates some unnecessary hidden issues.

Both undervaluation and overvaluation take place in exports according to the requirement. Sometimes commodities such as tea is knowingly undervalued to protect the market share. In contrast commodities under the India–Sri Lanka, Free Trade Agreement (ISFTA) are overvalued in order to obtain the Free Trade Agreement (FTA) facilities.

ISFTA states that the Domestic Value addition (DVA) in the exporting country should not be less than 35 percent of the freight on board (FOB) value of the finished product.

Also, the exporters who do imports also are used to overvalue the goods and avoid the repatriation of the export earnings by compensating the value of imports. These malpractices are very common due to the lack of correct controls.
Basically, Exporters can declare any value to the Customs for their exports. There are no clear legal provisions in the Sri Lankan law to stop them from doing so.

2. Monitoring of Repatriation of export proceeds

In February 2021 Central Bank of Sri Lanka issued regulations by gazette notification to oversee the export earning repatriation. Until then Export Proceeds Repatriation had not been monitored at all.

According to the gazette, every exporter of goods shall Receive the export proceeds in Sri Lanka in respect of all goods exported within hundred and eighty (180) days from the date of shipment, immediately upon all and every receipt/s of export proceeds being received, forthwith submit all related documentary evidence on each and every receipt of export proceeds, in respect of every export of goods and services to the respective licensed bank, that receives such proceeds, in Sri Lanka.

All licensed banks are supposed to submit reports about the Repatriation of export proceeds to the Director of the Foreign Exchange Department of the Central Bank.

Despite Central Bank receiving these reports, the total merchandize export value of Sri Lanka is still calculated based on the statistical value submitted to the Customs via Export CusDecs.