Sri Lanka has allowed residents to buy stocks abroad and foreign investors have been allowed to buy into local corporate debt and in
surers have been given permission to invest up to 20 percent of their reserves abroad.The exchange control relaxations are in effect from November 22, the government said in a statement issued with the budget.
Central Bank Governor Nivard Cabraal promised to liberalize exchange controls in a road map in January.
Foreign tourists and business visitors will also be allowed to open bank accounts in Sri Lanka.
Sri Lanka imposed exchange controls within two years of establishing a money printing central bank after abolishing a currency board arrangement which had allowed free capital mobility.
Exchange controls are needed to prevent a fall in an exchange rate when a central bank prints money to finance a budget deficit and tries to maintain an exchange rate peg at the same time.
The phenomenon is known as the 'impossible trinity' of monetary policy or the 'open economy trilema'.
The central bank is now conducting fairly tight monetary policy and has built up a large stock of foreign reserves.
The full government statement is reproduced below.
1. Permission is granted for foreigners to invest in rupee denominated debentures issued by local companies. To give effect to this, relevant Gazette notification has been issued by the Controller of Exchange.
2. Permission is granted for Sri Lankan companies to borrow from foreign sources with effect from 22.11.2010. The procedures and documents required in order to complete the process have been prepared by the Central Bank of Sri Lanka.
3. Permission is granted for foreign companies to open places of business in Sri Lanka with effect from 22.11.2010.
To give effect to this, necessary gazette notification to establish the procedure to be followed for this purpose has been issued to all concerned, while the Controller of Exchange has also issued instruction to the authorized dealers covering the bank accounts to be opened for this purpose.
4. Permission is granted to foreigners on tour or businesses in Sri Lanka to open accounts in foreign currency with effect from 22.11.2010. To give effect to this, necessary instructions will be issued by Central Bank of Sri Lanka to all the banks operating in Sri Lanka.
5. Permission is granted to the staff of foreign embassies in Sri Lanka to open new foreign currency accounts with effect from 22.11.2010. To give effect to this, necessary instructions have been issued by the Controller of Exchange to all authorized dealers operating in Sri Lanka.
6. Permission is granted to increase the advanced payments for imports from US $ 10,000 to US $ 50,000 with effect from 22.11.2010. To give effect to this, necessary instructions have been issued by the Controller of Import and Export to all authorized dealers operating in Sri Lanka.
7. Permission has been granted to Sri Lankan residents to invest in equity of overseas companies and make payments in respect of setting up of places of business outside Sri Lanka. To give effect to this, relevant orders under the Exchange Control Act have been issued by the Hon Minister of Finance and Planning and the Controller of Exchange has issued the necessary instructions to the authorized dealers operating in Sri Lanka.
8. Permission has been granted to insurers to invest up to 20 percent of the long term fund and technical reserves aboard. To give effect to this, relevant Gazette notification has been issued under the Regulation of Insurance Industries Act and directions have been issued to authorized dealers.
9. Permission is granted to importers and indirect exports of gem and jewellery to open foreign currency accounts with effect from 22.11.2010. To give effect to this, necessary instructions will be issued by the Controller of Exchange. Already exporters of such items are enjoying this facility.
Related Info:
Central Bank of Sri Lanka - Further Relaxation of Foreign Exchange Regulations
Sri Lanka Government Gazette
Foreign Currency Accounts for Sri Lankan Overseas Service Providers and Their Employees
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