The Central Bank of Sri Lanka announced today that in the light of the budget it has made arrangements to simplify foreign exchange controls in order to facilitate foreign exchange transactions.
Accordingly, the Central Bank has relaxed foreign exchange regulations relating to investment by Sri Lankans abroad, foreign borrowings by resident companies and investments by non-residents in the domestic market.
In addition the Central Bank has introduced new foreign currency accounts for a number of vital sectors including tourism and gem and jewellery industry.
The Central Bank says it is of the view that the relaxation of the foreign exchange controls would pave the way to further integrate the Sri Lankan economy with the global economy by contributing to improve investor confidence, strengthening foreign reserves in the long term, maintaining a cordial relationship with bilateral and multilateral foreign institutions and stabilizing the foreign exchange market.
The Bank will implement the new policies in two stages. The first set of policies will be effective from yesterday while second set will take effect from with effect from January 01, 2011.
Among the set of policies that are to be implemented immediately the Central Bank has given permission for foreign companies to open businesses in Sri Lanka in accordance with the Companies Act to further facilitate foreign direct investment into the country.
A gazette notification outlining the procedure to be followed by overseas companies in establishing a place of business in the country has now been issued, the Bank said, adding that necessary instructions to the Authorized Dealers covering the bank accounts to be opened for this purpose have also been issued.
Under the new measures the Central Bank has allowed the foreigners to invest in Rupee Denominated Debentures to broaden the investor base and improve liquidity in the secondary market.
Recognizing the need for the country to enhance investments to maintain its high growth momentum in the coming years and to create alternative avenues to meet financing needs of the entities at a relatively low cost, the Bank has granted permission for companies that are engaged in a variety of businesses to borrow from foreign sources.
To promote the growth in tourism sector the Bank has now allowed the foreigners touring the country to open accounts in foreign currencies.
Among other measures that go into effect from yesterday are, the establishment of foreign currency accounts to facilitate staff in diplomatic missions to freely engage in foreign currency transactions with banks and increase in the advance payment for imports from USD 10,000 to USD 50,000.
The policies that go into effect from January 1st will allow Sri Lankan investors and entities to invest in international capital markets to help further integrate domestic investors with international capital market.
"Since Sri Lanka's foreign reserve had increased to a healthy level and is expected to increase further, it has now been decided to permit residents to invest in equity of companies incorporated outside Sri Lanka and to establish places of business outside Sri Lanka," the Central Bank said in a statement.
Under the new policies, insurance companies will be able to invest up to a maximum of 20% of the general funds and technical reserves over a period of three years in overseas funds and other investment vehicles.
This would facilitate opportunities for insurers to diversify their investment portfolio and contribute towards improving the long term financial stability of their companies, the Central Bank said.
The relaxed regulatory controls will allow the local investors to open Outward Investment Account (OIA) and foreign investors to open Inward Investment Account (IIA) to facilitate outward and inward foreign exchange transactions with regard to investment activities.
The monetary authority said these policies were also announced in the "Road Map: Monetary and Financial Sector Policies for 2010 and Beyond" in January 2010.
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