ECONOMYNEXT – Sri Lanka has extended exchange controls introduced after a steep fall in the currency around March and April 2020, in the wake of a bout of money printing till July 01, 2021.
Sri Lanka already has capital controls. Sri Lanka tightened exchange controls progressively after setting up a money printing central bank in 1950 and completely closed the economy in 1971.
Monetary instability has worsened after the central bank started targeting call money rates abandoning a policy corridor under a ‘flexible’ inflation targeting with a ‘flexible’ exchange rate, which critics say amounts to un-anchored policy.
Sri Lanka has also controlled imports.
The full statement is reproduced below.
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 Covid-19 pandemic situation, the Hon. Minister of Finance with approval of the Parliament has issued an Order published in the Gazette Notification No 2206/25 dated 18 December, 2020, extending the period of validity of the Order published in the Extraordinary Gazette Notifications No. 2182/37 dated 2 July, 2020, for further six months from 2 January, 2021, based on the recommendations made by the Monetary Board of the Central Bank of Sri Lanka.
Accordingly following restrictions on outward remittances on Capital Transactions will be effective till 1 July 2021.
1. Suspension of 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.
Department of Foreign Exchange
2. Suspension of 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. Limitation of 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. Limitation of 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. Limitation of 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.
Further information can be obtained by visiting www.dfe.lk