Cabinet nod to extend restrictions on capital outflows by further 6 months

• Recommended by CB to maintain stability of financial system

The Cabinet of Ministers granted approval to extend the current restrictions on capital outflows, which was to be expired today (July 1), by a further six months, citing potential risks to the foreign exchange market and to maintain the stability of the financial system.

The government in April last year suspended a range of transactions related to external remittances by issuing orders under Section 22 of Foreign Exchange Act No. 12 of 2017, in order to preserve the foreign exchange reserves and rupee amidst the COVID-19 pandemic.

The orders were to be expired on July 1 this year. However, the Central Bank (CB) recommended a further six-month extension in order to minimise the potential risk in the foreign exchange market and maintain the stability of the financial system. 

Accordingly, Prime Minister Mahinda Rajapasksa, in his capacity as the Finance Minister, sought the approval of the Cabinet of Ministers to extend the orders imposing certain restrictions/prohibitions on foreign exchange remittances by a further six months, starting from tomorrow (July 2).

The country’s foreign exchange reserves dwindled to US $ 4.01 billion at end-May, from US $ 4.4 billion at end-April. 

On this context, the CB has also backed further restrictions on non-essential and non-urgent imports to preserve the country’s foreign exchange reserves. Furthermore, it has also asked the banking sector to become non-reliant on the foreign exchange reserves to finance imports.