Central Bank tightens exchange controls amid foreign liquidity crunch

The Central Bank last Friday tightened exchange controls on foreign exchange outflows on myriad transactions, including the ones made by companies for cross border investments, for six months, though with exceptions, while reducing the amount of money that can be taken out when one migrates as the country is facing an acute shortage of foreign exchange as inflows weakened ahead of foreign currency loans falling due. 

The Cabinet of Ministers last week granted approval for a proposal by the Finance Minister under the instructions of the Monetary Board of the Central Bank to further extend the existing restrictions put in place on foreign exchange outflows from the height of the pandemic last year for a further six months from July 2. 

Accordingly, the Central Bank suspended making payments through outward investment accounts for the purpose of making investments overseas by resident Sri Lankans unless such investments are made out of fresh foreign currency loans obtained by the investor or such investment made to fulfill a regulatory requirement in the country in which the investment is 
already made. 

However, the Monetary Board has the authority to grant permission for the above transactions, which exceed the limits specified under general permission granted in the regulation No.01 of 2021, on a case-by-case basis. 

An additional investment up to maximum of US$ 15,000 or equivalent in any other designated foreign currency could be made in an already established subsidiary or a branch office established overseas by eligible resident companies, while they could remit up to a maximum of US$ 30,000 or equivalent for the purpose of mainlining a liaison, marketing, agency, project representative or any other similar office already established overseas. 

Further, the outward remittances on capital transactions made via business foreign currency accounts and/or personal foreign currency accounts held by a resident Sri Lankan is also limited up to a maximum of US$ 20,000 or equivalent.

Meanwhile, the new order issued on July 2 also suspended the repatriation of funds under the migration allowance out of funds received as monetary gifts by an emigrant from an immediate family member. 

Further, 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, are also limited up to a maximum of US$ 10,000, while the first time migration allowance is limited up to a maximum of US$ 30,000. 

Further, the repatriation of current income or accumulated current income including Employees’ Provident Fund, Employees’ Trust Fund, gratuity and pensions or any other retirement benefits are also limited to a maximum of US$ 30,000. 

Meanwhile, the new order has also limited the outward remittances or issuance of foreign exchange up to a maximum of US$ 20,000 for any Sri Lankan individual, who resides in or outside Sri Lanka, and has obtained temporary resident Visa of another country, which falls into the category of visa that entitles the individual to obtain permanent residency status or citizenship in that country at a future date. 

Further, the order has also limited issuance of foreign exchange up to maximum of US$ 10,000 for any person resident in Sri Lanka, who intends to leave Sri Lanka under temporary residence visa of another country.