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Sunday December 3rd, 2023

Sri Lanka tightens capital controls, outflows from forex accounts capped

ECONOMYNEXT – Sri Lanka has tightened exchange controls halting new foreign investments by companies and individuals for the next six months and also lowered the amount of money that citizens can take out when they migrate to another country, as money printing de-stabilized dollar soft-peg.

For the next six months, outward remittances from personal or business foreign currency accounts would be limited to 20,000 dollars.

Sri Lankan firms could invest up to 2 million dollars outside the country under earlier regulations without special permission and individuals could invest up to 200,000 US dollars a year.

Investments from abroad could still be made from foreign borrowings.

The monetary board of the central bank could still approve investments on a case by case basis.

Sri Lanka’s current Minister of Money and Capital Markets Nivard Cabraal started a new round of exchange control relaxations when he was central bank governor. In 2017 the last administration gave blanket approval for individual and firms to invest abroad subject to limits, without prior approval.

For many decades in Sri Lanka all capital transactions had to be individually approved and no citizen was allowed to have foreign bank accounts.

Exchange controls were tightened progressively after a Latin America style central bank was set up in 1950 by a so-called American ‘money doctor’, abolishing a currency board that kept the exchange rate fixed (to silver) from 1885.

The regulations will be in effect for the next six months.

Firms would also be allowed to remit up to 15,000 dollars to existing branches and funds needed to meet regulatory requirements abroad.

The first allowance for those migrating abroad has been brought down to 30,000 from 200,000.

Gifts received from immediate family members would not be allowed to be remitted.

Remitting funds in the provident funds would be limited to 30,000 dollars.

A person who is already resident outside who get temporary residence visa holders to be issued 20,000 dollars down from 30,000 earlier

A person who gets a new temporary resident visa to be issued 10,000 dollars down from 30,000 earlier.

Download forex regulations-July 2021

Sri Lanka has printed unusually large volumes of money under the so-called ‘modern monetary theory’ triggering record balance of payments deficits and pressure on the soft-currency peg of the country.

Pressure has intensified after taxes were cut in 2019 in a ‘fiscal stimulus’ and rates were cut and large volumes of liquidity injected in a ‘monetary stimulus’.

Sri Lanka has been operating a highly unstable soft-peg labelled a ‘flexible exchange rate’ which is neither a consistent peg (external anchor) nor a floating rate (domestic anchor), which conflict which each other triggering currency collapses.

Exchange controls were enacted barely two years after after a Latin America style central bank was set up in 1950 by a so-called American ‘money doctor’, abolishing a currency board that kept the exchange rate fixed (to silver) from 1885.

Economist Steven Hanke says exchange controls can be traced back to Plato, who was inspired by Lycurgus of Sparta.

“Exchange controls are nothing more than a ring fence within which governments can expropriate their subjects’ property,” explains Hanke.

“Open exchange and capital markets, in fact, protect the individual from exactions, because governments must reckon with the possibility of capital flight.”

Modern exchange controls were pioneered by Tsar Nicholas II in 1905/6 when the State Bank of Russia refused to sell foreign exchange except for imports.

“The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges,” wrote economist and philosopher Freidrich von Hayek in Road to Serfdom.

“Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference.

“Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty.

“It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape-not merely for the rich but for everybody.”

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Sri Lanka UGC wants to boost number of IT-related degrees

ECONOMYNEXT – Sri Lanka’s University Grants Commission is of the view to boost the number of Information Technology (IT) related degrees in state universities with an aim to pave the way for a digital economy.

Sri Lanka’shigher education system has been producing more graduates in Arts stream while the degrees in highly demanded IT and other engineering services are being looked at only now.

“We do have a high demand for engineering, science, AI, computer and electronical engineering

studies,” Chairman of University Grants Commission, Sampath Amaratunga, told reporters at aa media briefing on Friday

“However, while avoiding neglecting the humanities, we should develop new IT skills.”

Amaratunga confirmed that a student who studied in any stream could obtain an IT degree, including students who studied in the arts stream.

The UGC data show that out of 18,490 engineering technology stream students who sat for their Advanced Levels (A/L) in 2022, 10634 were eligible for university.

“Even streams like agriculture should be encouraged to use technology,” Amaratunga said. (Colombo/Dec 2/2023)

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Sri Lanka leader inaugurates Climate Justice Forum at COP28 in Dubai

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe launched Climate Justice Forum (CJF) at the ongoing 2023 United Nations Climate Change Conference (COP28) held in Dubai in a move to gather support for vulnerable nations hit by climate-change led disasters.

This year’s climate summit held in Dubai’s EXPO2020 features a raft of issues for countries working to find common ground in tackling climate change, including whether to phase out fossil fuels and how to finance the energy transition in developing countries.

Wickremesinghe inaugurated the Climate Justice Forum at COP28 on Saturday and emphasized the critical importance of addressing climate issues with a sense of justice and equity.

The President had been in talks with many nations vulnerable to climate change disasters including African and South American countries to get their support for the CJF.

The move is to compel advanced and developed countries to look into the poor nations hit by the climate changes and help them to get over economic and debt burdens by either investing more in green energy initiatives or writing off debts to ease financial pressure.

Sri Lanka, which is now facing an unprecedented economic crisis, has seen increasing losses and damages, both human lives and physical properties due to climate change-led disasters like floods, drought, and earth slips.

In his speech at the COP28 forum, Wickremesinghe on Friday said the Climate Justice Forum will provide a platform for constructive and proactive engagements. (Dubai/Dec 2/2023)

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Sri Lanka IMF review goes to executive board on December 12

ECONOMYNEXT – The first review of Sri Lanka’s International Monetary Fund program is scheduled to go the lender’s Executive Board for consideration on December 12.

Sri Lanka officials were expecting the review to be completed in December as soon as official creditors gave their assurances.

According to the notice Sri Lanka had missed one performance criterion and has requested modifications.

Sri Lanka has outperformed on a number of quantity targets including inflation. In addition to quantity PCs there was also one non-accumulation of arrears.

There would also be re-phasing of access. The review was originally expected around September with another review based on December data, leading to September and March disbursements.

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