Export Transactions and Recording Thereof

 

Media reports show export information has been revised with downsize. The record presented earlier was exaggerated. Export is a part of transactions which relate to external sectors. It is a sales beyond border. In determination of economic outputs, this is an essential component. It is said export moves goods abroad and brings employment. But problem is that export is executed at low price. Though it imports employment, its benefits go abroad. Walmart can be cited in this context. This chain sells goods at low prices. It is criticized in public, but people like it privately. It is an interesting case.

Export is an economic indicator positioning a country in global level. Export performance is an important issue, hence. Central bank presents it in transactions statements with rest of the world. This is known as ‘balance of payments’ which is of different parts such trade accounts, current accounts, and financial accounts. Aggregate of these accounts brings overall position either in surplus or deficit. ‘Balance of payments’ works by mathematical formula. International Monetary Fund has a rulebook on it known as BP manual. Whatever the procedure is, it is a bookkeeping process of debit and credit. Trade including current accounts presents actual economic activities with external world. Transactions may be executed on cash or credit. In case of credit, payment is to be settled at later date but transactions are recorded at the time of execution. As such, on-time recording is a factor.

Export is recorded, as per media reports, at customs points. They record whatever is moved abroad from the country. Return of an equipment is, as an example, recorded as export though the transaction does not bring payment. In the same way, gifts, samples, etc. are recorded as export. In addition, wrong entries, cancellation, etc. are in the system. Without making validation, whatever it is available this is recorded as exports. This can be guessed to happen earlier. It is true that all movements from the country are exports but all exports do not bring money. As such, records need to be purified.

Cross border transactions are regulated by prevailing foreign exchange regulations of the country. Central bank is empowered to enforce the regulations. As per the rulebook of central bank, export trade is to follow some set procedures. First of all exporters need to declare what is to be exported. There is a format known as ‘exp form’ used for the said declaration. Such declaration is made to customs authorities. Exporters can submit online declaration, as per insiders, which becomes available to customs authorities through central bank’s reporting system. It is known that exporters need to declare in the past manually in paper document which was first certified by banks designated by exporters. The introduction of online submission has eased the declaration system for which central bank deserves appreciation. Based on the declaration, customs make assessment of the particular goods. This results in an official document known as ‘bill of export’. But this document does not indicate movement of goods until it is shipped onboard. After declaration by exporters and issuance of ‘bill of export’, there are many instances of cancellation of exports as per business insiders. But export records are said to remain there without charge. As a result, it would be overstated.

With regards to foreign exchange regulations, exporters need to submit documents to banks within 14 days from the date of shipment. With this information, central bank becomes aware of execution of shipments. Banks are required to send the documents within 14 days for collection of payments. Exporters need to repatriate export proceeds within 120 days from the date of shipment. Central bank counts time from shipment date. If the payment is not received within the set period, the same is treated as overdue. Within the statutory period, the payment receivable from importers is called as outstanding. Till realization, this amount becomes a receivable item with status as trade credit in financial account under ‘balance of payments’. In a simple golden rule of bookkeeping, receivable is an asset without counter entry of export- debit and credit. In case of cash payments, fund is accumulated in Bangladesh account reflecting either reserve or nostro balance of commercial banks. This is just record keeping method under bookkeeping rule. Very simple it is, it is not a rocket science. Despite, ‘balance of payments’ becomes misleading in case of wrong information incorporated herein.

Regulations for export are flexible considering practical situations to execute exports. Exporters are allowed to pay foreign agents commission. This is up to a certain percentage of export value. Beyond the limit, it is possible under approval route meaning that required commission is payable subject to approval from the authority. In executing cross border transactions, different charges are involved such as bank charges, fund transfer charges, collection charges, etc. Export on credit terms requires time to realize payment. During this time, exporters can get export bills discounted by banks abroad. There is a ceiling of cost for discounting linked with the benchmark rate of relative currency and a fixed markup.

As said above, different charges need to be adjusted with export proceeds. Of all items, agents commission and discounting charges are substantial. All charges are adjusted before repatriation of proceeds. As a result, there is a gap between value declared in ‘exp form’ and repatriation. Since the adjustment is made with export proceeds, there is no chance to show them as outward payments. Rather the system considers them as admissible items as per business insiders. Just as a hypothetical case of 100 US dollar export will bring 88 US dollar if commission is 5 US dollar, discounting charges of 6 US dollar, and 1 US dollar as bank charges. It indicates exporters need to bear additional cost of 12 percent. This needs to be addressed. Otherwise true view of exports will not be presented. Where is the solution?

There are challenges for ‘balance of payments’ maker. Central bank cannot receive information immediately, rather they need to wait for two weeks. As such, there is no alternative to refined data from customs. Otherwise, shipment-base information will not be available. What is to be done for different adjustments as said earlier is an issue. On the other hand, export proceed is permitted to be repatriated within 120 days from the date of shipment. This is credit period extended by exporters to importers. According to business insiders, exports trade has been changed to credit term from sight payments. Presently it is known export at least 80 percent is executed for a credit period of 90 to 120 days. If it is so, monthly export trend of 100 US dollar (say) will require around 90 days to be repatriated. Stock will be accumulated and every month around 240 US dollar will remain receivable in the country’s books of accounts. It holds true unless exporters do not arrange export bills discounted at sight. Recent cost hike in foreign currencies, exporters are said to be reluctant to discount export bills. But ‘balance of payments’ statement is found adjusted with drastic fall. How it is calculated needs attention considering reality in markets.

Export information should reflect actual transactions. Information based on ‘bill of export’ does not reflect actual status unless export is shipped onboard. What is to be done is to extract data based on shipments shipped onboard having ‘exp’ number. This is to be presented in trade account part of ‘balance of payments’ statement. Current account should include adjustments on account of foreign agents commission, different charges without limiting to cost for bill discounting. Outstanding should reflect actual position without considering export less realization since realized proceeds are a view net of different adjustments.

 
Mehdi Rahman works in the
development sector.