Chapter

SRI LANKA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: March 15, 1994.
Exchange Arrangement
CurrencyThe currency of Sri Lanka is the Sri Lanka rupee.
Exchange rate structureUnitary.
Classification
Crawling bandThe Central Bank of Sri Lanka (CBSL) announces the daily spot buying and selling rates of the dollar against the Sri Lanka rupee for transactions with commercial banks within margins of 2%, and buys and sells the dollar on a spot basis at those rates.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward sales are permitted up to a period of 360 days. The commercial banks provide a forward exchange market in which rates for current transactions are freely determined.
Arrangements for Payments and Receipts
Prescription of currency requirementsPayments to and receipts from the member countries of the ACU with respect to current transactions and settlements are effected in dollars. For settlements with all other countries, payments for imports may be made in any foreign currency or in Sri Lanka rupees provided that the supplier maintains a nonresident rupee account in Sri Lanka. Other payments may be made either in the currency of the country to which the payment is due or by crediting Sri Lanka rupees to a nonresident rupee account with the prior approval of the CBSL.
Payment arrangements
Regional arrangementsSri Lanka is a member of the ACU.
Clearing agreementsYes.
Administration of controlExchange control is administered by the CBSL’s Department of Exchange Control. All remittances of foreign exchange in Sri Lanka must be made through authorized commercial banks in accordance with procedures prescribed by the Controller of Exchange (COE). Remittances may also be made through post offices under permits issued by the COE. The Board of Investments (BOI) handles all applications relating to foreign investments in Sri Lanka.
International security restrictions
In accordance with UN sanctionsYes.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeThe importation of gold for domestic, industrial, or commercial purpose is permitted without restrictions. Effective June 30, 1999, all residents are permitted to trade in gems and gold. Imports of other previous metals have been further liberalized.
Controls on exports and imports of banknotes
On exports
Domestic currencySri Lanka nationals may each take out of Sri Lanka up to SL Rs 1,000.
Foreign currencyUnspent rupee balances from foreign exchange sold by foreign passport holders may be reconverted into foreign currency notes only at exit points, against original encashment documents issued by the authorized dealers or money changers, and can be taken out. Individuals may take out foreign currency for travel purposes and are required to declare to customs if the amount exceeds $10,000 or its equivalent.
On imports
Domestic currencySri Lanka nationals may each bring into Sri Lanka up to SL Rs 1,000.
Foreign currencyTravelers must declare, at entry, foreign exchange holdings exceeding $10,000 or its equivalent. In the case of nonconvertible currencies, a declaration has to be made, irrespective of the amount. Prescribed currencies are not permitted to be imported.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyResidents may open and operate resident foreign currency accounts with a minimum balance equivalent to $500 in designated currencies, provided the funds do not relate to any transactions. Effective June 30, 1999, the requirement to close these accounts when balances fall below $500 was relaxed.
Held abroadThese accounts may be opened, but approval is required.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedSri Lankans employed abroad and nonnationals of Sri Lanka origin who are employed and reside abroad may maintain nonresident foreign currency (NRFC) accounts in designated foreign currencies. Credits to these accounts are limited to remittances from employment earnings abroad, foreign exchange earnings brought into the country by such individuals, approved investment incomes, and interest payments on the accounts. Balances on NRFC accounts may be invested in enterprises approved by the BOI, with some exemptions. Dividends and profits earned and sale proceeds of such investments received in foreign currency may be credited to the NRFC accounts without the prior approval of the COE. Resident foreigners may maintain foreign currency accounts with domestic commercial banks in any of 13 designated currencies without prior exchange control approval. These accounts must be operated by the domestic unit of the bank and not by its Foreign Currency Banking Unit (FCBU). The accounts may be current, savings, or deposit accounts, but withdrawal of funds by check is not permitted. Credits to these accounts are limited to inward remittances and to amounts in Sri Lanka rupees authorized by the COE for remittance abroad. Debits to these accounts are limited to outward remittances and to payments after converting into Sri Lanka rupees.
Domestic currency accountsThese accounts may be held by (1) nonnationals residing outside Sri Lanka; (2) firms and companies registered outside Sri Lanka; (3) Sri Lanka nationals residing outside Sri Lanka; (4) emigrants; and (5) foreign banks. The opening of these accounts for categories (1) through (3), credits from inward remittances, and debits for local disbursements or outward remittances may be effected freely; however, local credits to these require prior approval. Accounts in category (4) are designated as nonresident blocked accounts only when instructions to that effect are received from the COE. Debits to such accounts for local disbursements may be freely effected without prior approval; effective June 30, 1999, interest on blocked funds is permitted for outward remittances net of taxes. However, local credits to them and debits for outward remittances in respect to capital funds over a ceiling of SL Rs 1 million a family (SL Rs 750,000 a person) require prior approval. In category (5), foreign banks may open and operate nonresident accounts with local commercial banks without prior approval of the COE.
Convertible into foreign currencyThese accounts may be converted, but prior approval is required.
Blocked accountsThese accounts are used to hold funds, usually of nonresidents, repatriates, and emigrants, that have not been accepted for transfer abroad. Authorized dealers may debit these accounts for local disbursements and credit them on account of pensions and income tax refunds. Balances of nonresident foreign citizens and foreign companies in approved blocked accounts outstanding on March 25, 1991, excluding Sri Lanka citizens who have emigrated or acquired foreign citizenship and Indian and Pakistani expatriates, may be remitted abroad. Sri Lankans who have emigrated and acquired foreign citizenship, and Sri Lanka citizens who have acquired permanent resident status abroad and whose accounts have been blocked for more than five years as of June 30, 1992, are also permitted to remit their account balances abroad. Except in the specified cases, remittances of up to SL Rs 1 million are also allowed from these accounts without prior approval.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Minimum financing requirementsAuthorized dealers may approve applications to remit foreign exchange or to credit nonresident accounts against applications for the opening of an LC, documents against payment (DP), or documents on acceptance (DA) terms, and against proof of a valid import license, where applicable. These requirements do not apply if the value of a consignment does not exceed $3,000 (c.i.f.) with respect to raw materials and spare parts for the use of a particular industry or for personal use.
Advance payment requirementsAdvance payments for personal imports are limited to $7,500.
Documentation requirements for release of foreign exchange for importsImports could be made on DP and DA terms and LCs.
Preshipment inspectionInspection is required for certain consumer goods.
Letters of creditYes.
Import licenses and other nontariff measuresAbout 285 items are maintained under license—mostly for public health, public moral, environmental, and national security reasons. Imports of wheat, meslin, and wheat and meslin flour are maintained under license in terms of a past contract entered into by the government with a private flour milling company. Certain machinery imports relating to foreign investment require the approval of the BOI.
Import taxes and/or tariffsThe tariff structure consists of two band rates: 10% and 25%, although the rate for agricultural products remains at 35%. A few categories of products (e.g., tobacco, liquor, crude oil, and some categories of motor vehicles) remain outside this tariff structure. A stamp duty of 2% is levied on LCs for certain imports. A national security levy of 5.5% and a goods and services tax of 12.5% are levied on imports.
State import monopolyImports of certain items, including wheat, guns and explosives, and certain chemicals and petroleum products, are restricted to government or state corporations.
Exports and Export Proceeds
Repatriation requirementsExporters are free either to repatriate export proceeds and have such proceeds credited to any rupee account or an Exporters’ Foreign Currency Account (EFCA) with the Domestic Banking Unit (DBU) or FCBU of a bank in Sri Lanka or to retain export proceeds abroad in any commercial bank, provided monies in such accounts are not used for acquisition of property or other capital assets outside Sri Lanka. Special arrangements apply to exports made under trade and payment agreements and to exports made to a member country of the ACU.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasLicenses are required for exports of coral shanks and shells, timber, ivory and ivory products, and passenger vehicles registered in Sri Lanka prior to 1945.
With quotasExport quotas are maintained on textiles and apparel used to implement bilateral quotas under the MFA. The Textile Quota Board allocates quotas among exporters based primarily on their past export performance.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersThese are indicative limits/bona fide tests in the case of all these transactions.
Trade-related paymentsRemittances of premiums for general insurance are permitted, subject to the country’s insurance regulations. Remittances of premiums for reinsurance are permitted.
Indicative limits/bona fide testFor commission, reasonable amounts are allowed for export orders secured through agents abroad, provided that export proceeds have been repatriated to Sri Lanka.
Investment-related paymentsProfit remittances of nonresident partners and remittances of dividends to nonresident shareholders of companies whose financial assets are in rupees may be effected through commercial banks without prior approval if they relate to the year of application and do not include undistributed profits of the previous years or reserves of the company. However, relevant documentation is required to remit interim profits or dividends, or final profits or dividends.
Indicative limits/bona fide testYes.
Payments for travel
Indicative limits/bona fide testYes.
Personal payments
Indicative limits/bona fide testYes.
Foreign workers’ wagesForeign technical employees of approved enterprises may remit their entire savings after meeting expenses and paying taxes and levies.
Indicative limits/bona fide testYes.
Credit card use abroadCredit card use is allowed only for travel-related purposes.
Indicative limits/bona fide testYes.
Other payments
Indicative limits/bona fide testYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsFunds retained abroad with COE permission and export proceeds permitted to be retained abroad should not be used for the acquisition of property or other capital assets outside Sri Lanka.
Capital Transactions
Controls on capital and money market instrumentsExcept for the local purchase by nonresidents of shares or other securities of a participating nature, all capital market securities and money market instruments are controlled.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsInvestments in shares by nonresidents of up to 100% of the equity capital of existing listed and unlisted public companies are permitted, subject to certain exclusions and limitations, without prior approval, in terms of a general permission granted through a Share Investment External Rupee Account maintained at a commercial bank.
Purchase abroad by residentsInvestments abroad by residents are not generally permitted unless there is evidence that they will promote the country’s exports and generate reasonable profits.
Controls on derivatives and other instrumentsAll transactions in derivatives and other instruments are controlled.
Controls on credit operationsEffective June 30, 1999, banks were granted general permission to provide rupee credits to nonresident-controlled companies incorporated locally, except for companies approved under Section 17 of the BOI Act. All other credit operations are controlled.
Controls on direct investment
Outward direct investmentInvestments abroad by residents are not generally permitted unless there is evidence that they will promote the country’s exports and generate reasonable profits.
Inward direct investmentApproval for foreign investment is granted on the basis of the type of activity. Nonresidents are allowed to invest in local companies up to 100% of the issued capital of such companies, except in certain excluded and restricted activities. Effective January 1, 2000, investments in the banking sector are permitted up to 60% of the equity capital (previously 49%); in insurance businesses, up to 90% (previously 49%); and in the financial services sector, up to 49%, except for certain services. In the case of stock brokering, this limit could be up to 100% if permission is granted by the Securities and Exchange Commission. Foreign investments in unit trusts were permitted, provided the trust deed contains the restriction to invest up to 20% in government securities. Excluded areas of investment include the following: money lending, pawn brokering, retail trading with capital less than $1 million, personal services providers other than for exporters and tourism and coastal fishing. The restricted sectors are the production of goods for export under international quota restrictions; growing and primary processing of cocoa, coconuts, rice, rubber, spices, sugar, and tea; primary processing of nonrenewable natural resources; timber processing industries using local timber; deep sea fishing; water supply; construction of residential buildings; telecommunications; mass communication; mass transportation; professional services; freight; travel; shipping agencies; and education. In these sectors, investments are permitted up to 40% of the equity capital of such companies. In the areas of air transportation, coastal shipping, production of energy and power, large-scale mining of gems, and lotteries, foreign investment is permitted up to a percentage approved by the government of Sri Lanka or the relevant authorities.
Controls on liquidation of direct investmentProceeds from the sale or liquidation of approved investments, along with the capital appreciation, may be remitted in full. Expatriates leaving Sri Lanka for residence in the country of their permanent domicile are permitted to transfer in full assets representing their retirement funds and savings. Persons who have had small businesses in Sri Lanka are allowed to transfer the capital they originally brought into the country, plus a reasonable amount of savings, subject to certain limits.



Authorized dealers may grant foreign exchange allocations to emigrants upon presentation of appropriate documentation.
Controls on real estate transactionsAll real estate transactions are controlled.
Controls on personal capital movementsAll personal capital movements are controlled.
Transfer of assetsRemittances of life insurance premiums in foreign currency are not permitted.
Transfer abroad by emigrantsAt the time of departure, emigrants may be granted foreign exchange to cover passage to the country of migration by normal direct route. Foreign exchange equivalent up to $2,000 a person may also be purchased at the time of departure. Personal effects of reasonable amounts plus jewelry up to SL Rs 150,000 for each married female, SL Rs 60,000 for unmarried females, SL Rs 30,000 for female emigrants under 12 years of age, and SL Rs 37,500 for male emigrants may be exported. Emigrants have also been permitted to effect capital transfers of up to SL Rs 750,000 an individual, up to a maximum limit of SL Rs 1 million a family unit.
Provisions specific to commercial banks and other credit institutionsThere are controls on all transactions by commercial banks and other credit institutions; however, there is no information on open foreign exchange position limits. Effective June 30, 1999, reporting requirements with respect to fund transfers through electronic fund transfer cards were introduced.
Lending locally in foreign exchangeCommercial banks may grant foreign currency loans from their domestic currency banking units to exporters who are in a position to pay their loans in foreign exchange earnings. Development banks are also permitted to extend foreign currency loans to exporters based on their foreign credit lines.
Provisions specific to institutional investorsYes.
Other controls imposed by securities lawsYes.
Changes During 1999
Arrangements for payments and receiptsJune 30. Trade in gems, gold, and other precious metals was liberalized.
Resident accountsJune 30. The requirement that resident foreign currency accounts be closed when the balance falls below $500 was relaxed.
Nonresident accountsJune 30. Interest payments were allowed on funds in blocked accounts and such interest is remittable after any due taxes have been deducted.
Capital transactions
Controls on credit operationsJune 30. Banks were granted general permission to provide rupee credits to nonresident-controlled companies incorporated locally, except for companies approved under Section 17 of the BOI Act.
Provisions specific to commercial banks and other credit institutionsJune 30. Reporting requirements with respect to fund transfers through electronic fund transfer cards were introduced.
Changes During 2000
Capital transactions
Controls on direct investmentJanuary 1. The limits for foreign equity participation in banking and insurance activities were raised to 60% and 90%, respectively, from 49%. In the case of stock brokering, this limit could be up to 100% if permission is granted by the Securities and Exchange Commission. Foreign investments in unit trusts were permitted, provided the trust deed contains the restriction to invest up to 20% in government securities.

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