Sri Lanka tightens capital controls, capped outflows from foreign exchange accounts


ECONOMYNEXT – Sri Lanka has tightened exchange controls, preventing new foreign investment from businesses and individuals over the next six months and also reduced the amount of money citizens can withdraw when they migrate to another countries, because silver printing has destabilized the soft-peg dollar.

For the next six months, remittances from personal or business currency accounts would be limited to $ 20,000.

Sri Lankan companies could invest up to $ 2 million outside the country under previous regulations without special permission, and individuals could invest up to US $ 200,000 per year.

Foreign investments could still be made from foreign loans.

The central bank’s monetary council could still approve investments on a case-by-case basis.

Sri Lankan current Minister of Currency and Capital Markets Nivard Cabraal has eased foreign exchange controls by giving blanket approvals for certain outward capital investments at a time when monetary policy was tighter and l The country’s anchoring was more solid and where less contradictory monetary and exchange rate policies were followed.

Before that, all capital transactions had to be approved individually.

Exchange controls were gradually tightened after the creation of a Latin American-style central bank in 1950 by a so-called American “doctorate”, abolishing a currency board that kept the exchange rate fixed (at the silver) from 1885.

The regulations will be in effect for the next six months.

Companies would also be allowed to pay up to $ 15,000 to existing branches and funds needed to meet regulatory requirements overseas.

The first allowance for those who migrate abroad has been reduced to 30,000 from 200,000.

Gifts received from immediate family members would not be allowed to be released.

Payments into contingency funds would be limited to $ 30,000.

A person who already resides abroad and obtains temporary residence visa holders for $ 20,000 compared to $ 30,000 previously

A person who obtains a new temporary resident visa will receive $ 10,000 from the $ 30,000 previously.

Download forex regulations-July 2021

Sri Lanka has printed unusually large volumes of money under so-called “modern monetary theory”, triggering record balance of payments deficits and pressure on the country’s soft currency peg.

The pressure intensified after tax cuts in 2019 as part of a “fiscal stimulus”, rates were cut and large volumes of liquidity injected as part of a “monetary stimulus”.

Sri Lanka has put in place a very unstable soft anchor called the ‘flexible exchange rate’ which is neither a coherent anchor (external anchor) nor a floating rate (national anchor), which conflict and cause collapse. currency.
(Colombo / July 02/2021)

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