Exchange controls eased on companies, migrating citizens
COLOMBO: Sri Lanka has relaxed exchange controls for companies and individuals migrating abroad, imposed during a currency crisis triggered by policy and market rates kept down by liquidity injections.
The relaxation comes as an ad hoc pegging regime, called a flexible exchange rate, weakened.
Sri Lanka has had exchange controls for decades due to conflicting external and domestic monetary anchors which began about 70 years ago, where liquidity injections are made for ‘macro-economic policy’, despite having a reserve collecting central bank.
Pegged central banks suffer balance of payment deficits and lose reserves and suffer currency pressure when liquidity from inflationary open market money is loaned to the broader economy by banks.
Under a clean float (domestic anchor only) or a hard peg (external anchor only) exchange controls can be abandoned and trade can be freed and people can prosper.
Central Bank Governor Nandalal Weerasinghe has said that the rupee would no longer be a ‘one-way bet’ and firms should use hedging instruments to stabilize import costs.
The new rules would be effective for six months from June 28.
A company would be allowed to remit up to $100,000 to set up or expand an overseas business through their Outward Investment Accounts. A company listed in the Colombo Stock Exchange would be allowed to remit up to $200,000 to expand an overseas office
A limit on remitting funds for working capital of overseas branches is increased from $15,000 to $30,000
A limit on capital transaction remittances through Business Foreign Currency Accounts is raised from 20,000 to 100,000
A suspension on investing in employee share ownership plans of foreign parent companies is removed.
A limit on an individual migrating abroad for the first time was raised from 30,000 dollars to 50,000 dollar.
A limit on subsequent remittances after the initial migration raised to 20,000 dollar from 30,000 dollar.
A dollar 30,000 limit on repatriating current income of those who had migrated is also removed. (Colombo/June28/2023)