Speaker: Travis Gomez
Date: 13th Jan 2018
Video length – 8:40 mins
What is government’s intention with regard to the new Forex Act (0.36 -1.52)
- This represents a shift in the policy direction from one of restricting foreign exchange movement to one that is facilitating exchange rate movement
- The change in the name from Exchange Control to Exchange Management emphasizes this point
- This goes in line with some of the other policy changes the Government has been making such as the new Inland Revenue Act, changes to the immigration and emigration laws.
- The shift is towards a more rules based approach, which has greater transparency and less political discretion
What are some of the broad features of the new Act (1.52 – 4.00)
- Greater clarity with regard to some of the definitions.
- Ex: Who counts as a resident and who is eligible for opening up the different types of accounts
- Reducing the complexity and simplification.
- The Act clubs 18 different accounts into 5 main accounts.
- Greater competition and discretion for banks.
- The banks would have more discretion in the approval of forex transactions.
- This is done with the intention of streamlining and speeding up the approval process
- The Act also opens up the market for greater competition as licensed brokers can open up certain accounts as well.
What are the implications of the Act for the broad economy? (4.00- 5:35)
- The act signals a more open approach to forex which could encourage a greater flow of FDI’s in to the country
- The Act broadens the type of investment opportunities non-residents can participate in. Apart from the typical stock & bond investments, foreigners can also invest in Unit trusts, Fixed deposits in banks etc.
- Of particular interest is the fact that the Act states that non-residents can invest in immovable property i.e: Real estate
- The Act also allows banks to provide loans in LKR or USD terms to non-residents for the purpose of constructing and buying real estate.
- This would be a positive development for the real estate sector, as given the level of activity ongoing in the sector, foreign investor participation can absorb some of the new capacity that is rapidly coming on line.
At a firm level, what are the implications of the Act? (5:35 – 6:37)
- The Act extends the limits to which companies can invest. The limit for listed companies has been increased from USD 500,000 per year to USD 2 mn per year.
- Firms also have the opportunity to invest in sovereign bonds and Unit Trusts abroad
- The limits for individuals has also been increased from USD 100,000 (life time investment) to USD 200,000.
- This would be an opportunity for firms in Sri Lanka and individuals to diversify their risk by investing abroad
For an individual, what are the implications of the Act? (6:37 – 8:10)
- The limits on how much LKR and foreign currency that can be taken in and out of the country has been changed. You can take up to LKR 20,000 or up to USD 15,000 in foreign exchange without having to declare it.
- With regard to migration transfers, the Act has increased the initial amount as well as the annual amount you can take as forex when migrating. The annual migration allowance has been increased to USD 30,000 per year
- In addition, any pension payments, dividend income etc. would not be subject to the above limit.
- Overall, there has been a reduction in the restrictions imposed on individuals.
Source: Frontier Blog