No rush to invest abroad despite forex relaxation
View(s):Despite the new Foreign Exchange Act being passed by Parliament last November making the transaction of foreign exchange more relaxed than before, banks haven’t seen any expected increase in ‘intended’ forex transactions, industry experts say.
Amongst these regulations which were cited in the Foreign Exchange (Capital Transactions in Foreign Exchange Carried on by Authorised Dealers) Regulations No. 2 of 2017, firms listed in the Colombo Stock Exchange can now invest up to US$2 million or the equivalent in any Central Bank designated foreign currency in shares, units, debt securities or sovereign bonds overseas. Earlier they could only invest $100,000 in those instruments.
The same investment for unlisted companies which was $100,000 is now increased to $500,000 annually, a partnership to $300,000 per annum and individuals can to go up $200,000 ((lifetime) from the earlier $100,000. A company or partnership is entitled to utilise up to $300,000 (per annum) in opening overseas offices which they couldn’t earlier.
Bankers told the Business Times that all these alterations have not seen many opening Overseas Investment Accounts (OIA) to carry out transactions.
“If at all only a few firms are doing it,” a senior banker told the Business Times. He added that some firms are purchasing foreign export oriented companies while others are starting offices in places such as Myanmar.
Another banker noted that there are many administrative checks and balances discouraging many from opening OIAs. Amongst these, obtaining clearance from a qualified chartered accountant on shares that will be invested in, tax clearances, letters from the Controller of Exchange, etc stand prominent.
Some analysts opined that returns guaranteed by local firms are better than putting cash abroad which is another reason many are ignoring this relaxation. They said that India has done similar relaxations in exchange controls since 2015, quite successfully. Encouraged by foreign exchange reserves touching record levels, the Reserve Bank in February 2015 doubled the annual overseas investment ceiling for individuals to $250,000.