Textiles exporters hoping the fall of Sri Lanka's rupee would drive a boom this year are set to be disappointed as a resulting rise in costs of imported materials undermines margins, the state-run Export Development Board (EDB) said on Wednesday.
Firms have been calling for years for a weaker currency to help them compete with other low-cost Asian producers; a change in the central bank's approach to the currency has driven the rupee 14 percent lower in the past month. After garment and tea exports drove a 22 percent rise in exports last year, officials had targeted a similar gain this year that would drive exports above $13 billion. But EDB Chairman Janaka Ratnayake told Reuters in an interview the target was now increasingly challenging.
"The main challenge will be the impact of the rupee currency depreciation," he said. "Depreciation has been the demand of exporters for many years and there is a direct positive impact on the export revenue. But majority of our exports like garments are based on imports. Because of the depreciation, the import cost will go up and the margins will come down," he said. The industrial sector, led by garments, accounts for around 80 percent of the total revenue and mainly depends on raw material and machinery imports. The rupee hit a record low of 131.60 per dollar on Monday after the central bank on February 9 opted out of an intervention method that cost it $2.7 billion in the second half of 2011.
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