Exchange controls extended to preserve foreign reserves

• Capital accounts control extended for six months from July 2 though with certain exemptions
• Firms operating foreign branches or offices have been allowed to remit only US$ 20,000 without prior approval
• First time eligible migration allowance for the emigrants capped at US$ 30,000
• Powers of Monetary Board to give special approval for remittances on case by case restricted

In a bid to preserve foreign reserves amid slowdown in foreign inflows from trade and services, and upcoming debt repayments, the Monetary Board and the government have jointly decided to extend the current controls on capital account transactions for a further six months effective from July 02, though with certain exemptions.

In April, the Central Bank imposed certain controls on outward remittances of foreign currency coming under the capital account such as overseas investments and migration allowance for a period of three months to rein in the pressure building up on foreign exchange reserves due to the slowdown in inflows from exports, tourism, workers’ remittances, and other service inflows.

Meanwhile, the county’s access to international capital markets was also delayed due to pandemic effects, prompting the government to clamp down on capital account outflows, until the situation turns favourable. 

To this effect, the Department of Foreign Exchange of the Central Bank has extended the suspension on the general permission granted to make outward remittances for foreign investments through outward investment accounts by persons resident in Sri Lanka, but with several exemptions. 

Such investments made in a foreign country is allowed if the investment is financed out of foreign currency loans obtained by the investor from a person resident outside Sri Lanka under the provisions of the Foreign Exchange Act, the new order said.  

Further, additional investments required to fulfill a regulatory requirement in the investee’s country as part of an already made investment, is also exempted. 

Meanwhile, remittances made for the purpose of working capital of already established subsidiaries or branch offices and for the purpose of maintenance of liaison, marketing, agency, project, representative or any other similar offices already established in overseas is also exempted, but what can be remitted is only up to a maximum of US$ 20,000. 

The order has also suspended the, “outward remittances through Business Foreign Currency Accounts (BFCAs) or Personal Foreign Currency Accounts (PFCAs) held by persons resident in Sri Lanka, other than for the remittances on current transactions up to any amount or capital transactions to a maximum of US$ 20,000”. 

Meanwhile, the first time eligible migration allowance for emigrants has been capped at a maximum of US$ 30,000 while the subsequent allowances are capped at US$ 20,000. 
The new order has also limited the authority of the Monetary Board to grant special permission for investments on a case-by-case basis, which exceeds the limits specified in the general permission.  

Thus the Monetary Board’s authority has been limited to make determinations only in the case of foreign investments financed out of foreign currency and additional investments required to be made to fulfill regulatory requirement.

The restrictions stipulated in the new order will be applicable on identified capital transactions and do not impose any restrictions on already permitted current transactions, the Central Bank said.