* Has solution to save at least US$ 1bn from the black market
A retired senior banker says Sri Lanka loses nearly US$ 3 billion in foreign exchange each year from private remittances and a further Rs. 100 billion in taxes and duties from importers under invoicing bills because the state was not doing enough to curb a thriving black economy in the country.
"The Sri Lankan population working abroad is estimated to be around 1.9 million in 2010. Based on that, average annual earnings are around US$ 8.7 billion. Even after excluding 20 percent of this (US$ 1.74 billion) on personal expenditure in their respective countries, Sri Lanka should get at least US$ 6.96 billion. But we have received only US$ 4.1 billion in 2010. Where did US$ 2.86 billion go? Consequently, this further verifies the estimation made by the Central Bank that 30 to 40 percent of foreign exchange is leaking in to the informal system," Retired People’s Bank Deputy General Manager Wasantha De Silva told The Island Financial Review.
"This figure could be much more in 2011, but there is no way of calculating the exact figure due to the non availability of official statistics. This amount is sufficient to finance the balance of payments deficit, and create a surplus to contribute significantly to the country’s development," De Silva, whose banking career spanned 40 years, said.
"In addition, looking at the trends in real estate markets, remittances from the Sri Lankan Diasporas via informal channels could be around US$ 500 million. Moreover, another US$ 100 million is leaking in to the informal sector through activities connected to tourism.
"Due to these large amounts of foreign exchange cheaply available in black market, there is a thriving nexus between importers to under invoice their import bills to escape paying their due taxes, amounting to something more than Rs. 100 billion each year. This is a momentous loss to the state coffers. The foreign exchange offenders caught every year in the customs’ net is only a fraction and indicates only the tip of the iceberg," De Silva said.
"To overcome this situation, the only way out is to provide monetary incentives to migrant/expatiate workers who depend exclusively on our banking system. In order to do that, an attractive package of prizes in the form of a strategically marketed lottery is the need of the hour. If it is designed and marketed in the optimum way to maximize the benefits to people, at a minimum cost, the foreign exchange earners have a larger incentive to use the formal banking system rather than choosing informal channels," De Silva said.
He suggests that the Central Bank or Treasury should adopt this strategy which would cover the entire banking system.
"I believe we could attract a further US$ 1 billion into the formal banking system. I pioneered a similar scheme for the People’s Bank in 2005 which brought in additional foreign exchange amounting to Rs. 1.8 billion in a single year. A concerted effort by the banking industry can have significant results and this is something I hope the government would take seriously," De Silva said.
He has already worked out a blue-print for the lottery and hopes to share it with the authorities.