Sri Lanka to introduce new law protecting foreign reserves

Nov 11, 2016 (LBO) – Sri Lanka has proposed to introduce a new Foreign Exchange Act to protect foreign reserves from irregular transactions. Finance Minister Ravi Karunanayake told Parliament yesterday that the current Exchange Control Act will be repealed for this purpose. An Investment Inflow Management Act will be introduced to facilitate the inward remittance of foreign exchange with minimum restrictions.

“Having studied the experience of India and Indonesia I propose to introduce this Act, in due course to facilitate the inward remittance of foreign exchange with minimal restrictions,” Finance Minister said.

“We also invite foreign companies to take advantage of the interest differential that prevails between Sri Lanka and other countries.” The amount of foreign currency required to be declared by a foreigner arriving in Sri Lanka will be increased to 40,000 US dollars from 15,000 US dollars. Restrictions imposed on international borrowings by Non-Bank Financial Institutions will be increased beyond 35 percent of the total assets indicated in the Balance Sheet. A resident of Sri Lanka who makes investments outside via an Outward Investment Account (OIA) and receives capital gains will be permitted to reinvest through the same OIA up to 50 percent of such capital gain without any limitation on maximum value of investment. “Any Company is also permitted to borrow internationally on the strength of their Balance Sheet, provided they hedge the exchange risk,” Finance Minister said. “Any violation of these directions is subject to a fine of 50 million rupees.”