The Government, in a bid to boost the country’s foreign reserves, has decided on several immediate measures to control the outflow of foreign currency.
Accordingly, the Cabinet of Ministers on Monday decided to make provisions to award additional interest for Special Deposit Accounts (SDAs) that are reinvested for a period of more than 12 months.
Cabinet approval has previously been granted to open SDAs and to pay additional interest to retain existing deposits in those accounts with effect from April 7, 2020 to encourage the remittance of foreign currency to the country.
Accordingly, the relevant orders have been issued under the provisions of the Foreign Exchange Act No. 12 of 2017. Under the existing provisions, it is possible to reinvest Special Deposit Accounts with a term of six months or 12 months and to award additional interest on such SDAs. However, there has been no provision to pay an additional interest rate for SDAs that are reinvested for a period of more than 12 months. Accordingly, the proposal made by Prime Minister Mahinda Rajapaksa in his capacity as the Finance Minister to make an order in terms of Section 7 (1) of the Foreign Exchange Act No. 12 of 2017, including the necessary provisions to pay additional interest for SDAs was approved by the Cabinet of Ministers.
The relevant Orders will be submitted to Parliament for approval. The Cabinet of Ministers also granted approval to extend restrictions imposed on foreign exchange remittances, for another six months from July 2.
The above measure had been decided taking into account the possible negative impact on the country’s foreign reserves and foreign exchange market due to the Covid-19 epidemic on the recommendation of the Central Bank of Sri Lanka (CBSL).
The CBSL had advised to extend the order to minimize potential risk in the foreign exchange market and maintain the stability of the financial system.
The Government has also decided to facilitate the companies incorporated in Sri Lanka for investing in International Sovereign Bonds of the Government of Sri Lanka. Some licensed commercial banks and registered companies in Sri Lanka have expressed consent in obtaining loans from outside Sri Lanka to invest in Sri Lankan Government International Sovereign Bonds.
Taking into account the overall benefits available to the country, the Monetary Board of the CBSL has agreed to allow licensed commercial banks, National Savings Banks and appropriately non-finance companies registered under the Companies Act No. 7 of 2007 to purchase International Sovereign Bonds of the Government of Sri Lanka and Sri Lanka Development Bonds, subject to certain conditions.
Accordingly, the Cabinet of Ministers approved the proposal presented by the Prime Minister to issue orders under Section 7 (1) of the Foreign Exchange Act No. 12 of 2017 to facilitate non-financial companies registered under the Companies Act No. 7 of 2007 to act accordingly, and to submit such orders to Parliament for approval.
The Government has also decided to facilitate local companies to raise foreign funds. The Colombo Stock Exchange (CSE) has submitted a proposal to list out the foreign currency denominated shares issued by the Sri Lankan registered companies on the Colombo Stock Exchange with the aim of increasing the ability of local companies to raise foreign funds in Sri Lanka.
Foreign Exchange Orders No. 2 of 2021 does not permit to be debited to the Business Foreign Currency Account by the issuance of debentures or initial shares issued in foreign currency or the payment of dividends or the payments received by distributing of foreign currency.
The Monetary Board of the CBSL has recommended the implementation of the proposal submitted by the Colombo Stock Exchange considering factors such as increasing the interest of foreign investors in Sri Lankan listed companies, attracting foreign currency into the country and increasing its participation, reducing the pressure on the Sri Lankan Rupee and making an alternative instead of Sri Lankan companies going to foreign stock markets for collecting Foreign Exchange.
The Cabinet of Ministers approved the proposal tabled by the Prime Minister to issue an order under Section 7 (1) of the Foreign Exchange Act No. 12 of 2017 amending the present Order No. 2 of 2021 to make the necessary provisions for the implementation of the said proposal and to submit that order to Parliament for approval.
