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Sri Lanka extends Coronavirus exchange controls till Jan 2021 after printing money

ECONOMYNEXT – Sri Lanka’s central bank has extended exchange controls slapped as large volumes of money printing in March and April 2020 put pressure on the currency for another six months from July 02, though some relaxations have been made.

Under the extended controls, companies operating foreign branches or offices have been allowed to remit 20,000 US dollars without prior approval.

However the amount that can be remitted out of a business or personal forex accounts had been limited to 20,000 dollars.

In April the central bank stopped a series of capital transactions that could be done without prior approval except but allowed regulatory payments with some exceptions.

In the new rules the powers of the Monetary Board to give special approval for remittances on a case by case has also been limited.

Current transactions are still free from the controls, but Sri Lanka has slapped import in the trade account not seen since the collapse of the Bretton Woods system in 1970s which led to the closure of the entire economy.

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Sri Lanka tightens forex controls after printing money

Sri Lanka central bank printed money (acquired domestic assets) or cut reserve ratios to inject a total of over 450 billion rupees since the last week of February and 1.3 billion US dollars had been sold to mop up part of the liquidity.

Over the past three weeks, however the central bank has withdrawn up some of the liquidity.

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Sri Lanka has suffered from severe exchange and import controls ever since a soft-pegged exchange rate regime with sweeping money printing powers was set up in 1951 by a US expert from the Latin American Department of the New York Federal Reserve.

There have been calls to reform the central bank to restore monetary stability.

Download July 2020 gazette – 2182-37_E-forex-remmitances

2169-03_E-remittance control-April

Department of Foreign Exchange
16 July 2020

Continuation of Measures Taken to Preserve the Foreign Currency Reserve Position of Sri Lanka

With a view to preserve the foreign currency reserve position of the country and considering the possible negative impact to the Sri Lankan economy due to the outbreak of Covid-19 pandemic, the Hon. Minister of Finance, Economic and Policy Developments with the recommendation of the Monetary Board of the Central Bank of Sri Lanka and the approval of the Cabinet of Ministers have issued an Order introducing following measures on outward remittances on Capital Transactions for a period of six (06) months effective from 02 July 2020.

1. Suspend the general permission granted to make outward remittances for investments overseas through the Outward Investment Accounts by persons resident in Sri Lanka excluding the following; a. investments to be financed out of foreign currency loans obtained by the investor from a person resident outside Sri Lanka under the provisions of the Foreign Exchange Act,

b. an additional investment to be made to fulfill the regulatory requirement in the investee’s country applicable on the investment already made in a company or a branch office in that country,

c. an additional investment/infusion of funds to be made by eligible resident companies in already established subsidiaries or branch offices in overseas up to a maximum of USD 20,000, for the purpose of working capital requirements of the investee,

d. the remittances up to a maximum of USD 20,000, for the purpose of maintenance of liaison, marketing, agency, project, representative or any other similar offices already established in overseas.

2. Suspend the outward remittances through Business Foreign Currency Accounts (BFCAs) or Personal Foreign Currency Accounts (PFCAs) held by persons resident in Sri Lanka, other than for the remittances on current transactions up to any amount or capital transactions up to a maximum of USD 20,000.

3. Limit the eligible migration allowance for the emigrants who are claiming the migration allowance for the first time, up to a maximum of USD 30,000.

4. Limit the repatriation of funds under the migration allowance by the emigrants who have already claimed migration allowance up to a maximum of USD 20,000.

5. Limit the authority of the Monetary Board of the Central Bank of Sri Lanka to grant special permission for investments on case by case basis, which exceeds the limits specified in the general permission, only to those satisfying the criteria mentioned in 1.a and 1.b above.

The above restrictions are only applicable to the identified capital transactions and do not impose any restrictions on already permitted current transactions.

The said Order published in the Extraordinary Gazette No. 2182/37 dated 02.07.2020 containing exact details can be accessed through “Downloads” in the official website of the Department of Foreign Exchange (www.dfe.lk).