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Sri Lanka tightens forex controls after printing money

ECONOMYNEXT – Sri Lanka has tightened controls on foreign exchange outflows for three months as the rupee slid in the wake of rate cuts and ‘helicopter drop’ style liquidity injections made to keep rates down as the country is trying to fight off an Coronavirus outbreak.

Sri Lanka has suspended all remittances by from business foreign currency accounts or personal foreign currency accounts are suspended for three months, Finance Minister Mahinda Rajapaksa said in an order issued through a gazette notice.

Sri Lanka has also suspended a general permission given for residents to invest a limited sum of money abroad though outward investment accounts.

However any foreign investment made through a foreign loan or investments made to comply with a foreign regulator would be permitted.

The larger amounts could also be sent out for regulatory purposes with the specific approval of the central bank.

Sri Lanka has made unprecedented liquidity injections in March and is continuing in April. The rupee has fallen from 182 to the US dollar close to 200 rupees.

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Sri Lanka makes fresh helicopter drop of liquidity as nation fights off Coronavirus

Sri Lanka has also halted imports of some goods and people have been advised to grow vegetables ahead of more controls.

The full statement is reproduced below:

BY virtue of the powers vested in me under Section 22 of the Foreign Exchange Act, No. 12 of 2017, I, Mahinda Rajapaksa, Minister of Finance, Economic and Policy Development do by this Order,

i. suspend making payments through Outward Investment Accounts for the purpose of making investments in overseas by persons resident in Sri Lanka under general permission granted in the Schedule I of the Foreign Exchange (Capital Transactions in Foreign Exchange carried on by Authorized Dealers) Regulations No. 1 of 2017 published in the Extraordinary Gazette Notification No. 2045/56 dated November 17, 2017, excluding :

a. investments to be financed out of a foreign currency loan obtained by the investor from a person resident outside Sri Lanka under the provisions of the Foreign Exchange Act, or

b. investments to be made to fulfill the regulatory requirement in that country provided that, the Head of Department of Foreign Exchange is satisfied with the fulfilment of such requirement;


ii. suspend any outward remittances other than the remittances on current transactions through Business Foreign Currency Accounts or Personal Foreign Currency Accounts held by persons resident in Sri Lanka;

iii. suspend the repatriation of funds under the migration allowance through Capital Transactions Rupee Accounts by the emigrants who have already claimed migration allowance under the general permission stated in the Schedule IV of the Foreign Exchange (Capital Transactions in Foreign Exchange carried on by Authorized Dealers) Regulations No. 1 of 2017 published in the Extraordinary Gazette Notification No. 2045/56 dated November 17, 2017;

iv. 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 ;

v. the Monetary Board shall have the authority to grant permission in terms of the Section 7(10) of the Foreign Exchange Act for the investments on case by case basis which exceeds the limits specified in the general permission granted in the Schedule I of the Foreign Exchange (Capital Transactions in Foreign Exchange carried on by Authorized Dealers) Regulations No. 1 of 2017 published in the Extraordinary Gazette Notification No. 2045/56 dated November 17, 2017 provided that,

a. the proposed investment is to be financed out of a foreign currency loan obtained by the investor from a person resident outside Sri Lanka under the provisions of the Foreign Exchange Act, or
b. b. the proposed investment is to be made to fulfill the regulatory requirement in that country

This order valied for a period of three months from April 2, 2020.

MAHINDA RAJAPAKSA,
Minister of Finance, Economic and Policy Development.
Colombo,