Sri Lanka restricts capital outflows to preserve forex reserves


MUMBAI, July 16 (Reuters) - Sri Lanka will restrict outward remittances to preserve its foreign currency reserves position due to the potential negative impact on the economy from the coronavirus pandemic.

Permission to remit funds for overseas investments by Sri Lankan residents will be suspended for six months from July 2, except under certain conditions, the Central Bank of Sri Lanka said in a statement.

The changes to the regulations were decided by the finance ministry in consultation with the central bank.

Sri Lanka's external debt payments between now and December amount to $3.2 billion. Other costs could bring that up to $6.5 billion in the next 12 months, Morgan Stanley estimates, and with FX reserves of just $7.2 billion, it has described the situation as a 'tightrope walk'.

Earlier this month, the central bank eased monetary policy for the fourth time since March as it ramped up efforts to support the economy and to encourage banks to "aggressively enhance lending" amid subdued inflation.

The central bank has taken several measures alongside the government to stabilise an economy that is heavily dependant on tourism for its revenues.

The central bank said it was limiting migration allowance for emigrants up to a maximum of $30,000 for first time applicants and at $20,000 for those who have claimed the allowance in the past.

It also laid down strict conditions for any business purpose investments and repatriation.

"The above restrictions are only applicable to the identified capital transactions and do not impose any restrictions on already permitted current transactions," the central bank said.

(Reporting by Swati Bhat; Editing by Jacqueling Wong)

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