The Hon. Kathiravelu Shanmugam Kugathasan

¶ 01 Hon. Deputy Speaker, I wish to present my views on the Regulation under the Foreign Exchange Act now before Parliament.

¶ 02 Foreign exchange management has historically functioned as a gauge of Sri Lanka’s economic condition. The Regulation tabled for Parliamentary approval is timely amid post-crisis recovery and recent natural disaster shocks. Issued on 17 February 2026 under Section 22 of the 2017 Act, and based on Central Bank recommendations, it serves as a prudential safeguard—empowering the Minister of Finance to temporarily restrict or suspend certain outward remittances to protect FX reserves and financial stability—while facilitating outward expansion of Sri Lankan firms without depleting official reserves. Even as reserves are protected, outward investment limits are significantly relaxed.

¶ 03 Listed companies may now invest up to USD 500,000 abroad to enable vertical integration and expansion; unlisted companies up to USD 150,000. This is a notable increase relative to prior suspensions and will help SMEs establish a regional footprint. Up to USD 100,000 is permitted to set up new overseas offices for premises, marketing and staffing; up to USD 30,000 for operating expenses of existing offices—addressing practical working capital needs. This marks a significant shift from the blanket suspension of Outward Investment Accounts that prevailed from 2020 to 2024.

¶ 04 For residents, the Regulation preserves caution on capital outflows while easing some transfers. The first-time resident outward remittance limit is set at USD 100,000—reduced from USD 200,000 under 2021 rules.

¶ 05 Comparing the 2017 Act with the 1953 Exchange Control framework shows key policy evolution: - Nature of offences: criminal offences under 1953 are civil under 2017; imprisonment removed. - Time-bound investigations: 2017 imposes a six-month period to conclude inquiries. - Institutional focus: 1953 established a control-focused department; 2017 created a facilitative Foreign Exchange Department within a liberalised philosophy, recognising earners—exporters and service providers—as owners of FX, with the state as regulator and promoter.

¶ 06 Nonetheless, concerns persist: - “Midnight gazettes”: frequent temporary directions under Section 22 create unpredictability for long-term investors. - Export proceeds rules: mandatory repatriation within 180 days and compulsory conversion of residual balances impose costs on exporters. - Ceiling adequacy: USD 500,000/150,000 limits may be insufficient for meaningful global scaling by manufacturing firms. - Regional competitiveness: India’s FEMA is more progressive—15 months to realise export proceeds and USD 250,000 per individual per year outward; Singapore abolished FX controls in 1978, allowing free flows for residents and non-residents.

¶ 07 Recommendations: - Customs and trade facilitation: implement a digital National Single Window to cut FX approval delays. - Phase out legacy paper clearances (port/airport/special) within five years. - Digital ID in 2026: accelerate financial system digitisation to better track FX flows.

¶ 08 This Regulation is a necessary and rational step in Sri Lanka’s economic journey, signalling a pivot from crisis management to growth, but should be embedded in broader institutional reforms to position Sri Lanka as a regional business and finance hub.