The Central Bank of Sri Lanka (CBSL) is liberalising foreign exchange outflows to a certain extent in order to facilitate the financial hub outlined in the recent Budget.
“In the past, there were restrictions on remitting foreign exchange. At the end of this week, we will issue a circular to the banks and a gazette notification will be issued on the 29th of this month,” CBSL Governor Arjuna Mahendran said.
Those who own foreign exchange accounts such as the Non-Resident Foreign Currency Accounts, Resident Foreign Currency Accounts, Exporters Foreign Currency Accounts and Indirect Exporters Foreign Currency Accounts may engage in such activities.
In the past, money could only be remitted in a case-by-case basis and in smaller amounts for reasons such as education, forcing businesses to raise capital in foreign countries for international expansion.
Businesses had also kept foreign exchange earned from exports in foreign banks.
CBSL Deputy Governor Dr. Nandalal Weerasinghe noted that account holders can only remit a total less than or equal to the total of foreign currency they have brought into the country, plus the interest earned in such accounts.
The new regulation follows a request by Finance Minister Ravi Karunanayake, who last October had asked all Sri Lankan residents and expatriates to deposit their foreign funds in Sri Lankan accounts, in order to earn more interest and increase the confidence in the country.
“Yes, this is part of the financial hub plan of the Finance Minister. But if you ask people to deposit their money here, they should also be able to take it out freely,” he added.
The new regulation was likely conceived at the latest Doing Business Forum, as when the Hayley’s group requested Karunanayake to give them permission to transfer capital to build a resort in the Maldives, he said that permission would be given if the Hayley’s group brings in any funds they have abroad.
Karunanayake recently said that there had been foreign currency deposits of US $ 450 million since he had made the request.
The aim of the policy is to attract US $ 2-3 billion by mid-April, out of US $ 10-15 billion deposited in foreign accounts.
Mahendran said that since the announcement was made, the country’s foreign reserves increased from US $ 6.5 billion to US $ 7 billion.
“It has had an effect, but it’s also partly because of borrowings we took. We can’t really distinguish the two,” he said.
He added that the inflows and borrowings have stabilised the rupee in recent weeks, after a volatile period when the CBSL stopped defending the rupee in September.
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