Foreigners get forex risk cover in investing in securities
Foreign investment in Sri Lanka’s rupee-denominated securities market is to be made more attractive by offering forex risk cover, tax relief and other incentives by the Finance Ministry and the Central Bank, a senior official of the State Ministry of Finance disclosed.
The government has identified the need to facilitate non-resident investors’ investments in government securities and other sectors to encourage the inflow of foreign currency into the country. Appropriate action has already been taken to inculcate confidence on the economic revival in the country following the COVID-19 setback among foreign investors, and non-resident Sri Lankan expatriates and investment firms overseas to invest in Treasury bills and Rupee bonds.
The Treasury bonds (rupee bonds) and Treasury bills markets are now opened for foreign investors to meet Sri Lanka’s budgetary requirements and reduce the nation’s dependence on foreign debt, the official said.
The Finance Ministry has introduced these short term debt instruments for foreign investors in a bid to ease the reliance on commercial borrowings, he told the Business Times.
The Central Bank is offering this insurance facility to investors against foreign exchange risk, by allowing domestic currency proceeds from qualified investments in Treasury bonds to be converted at the same exchange rate that prevailed at the time of initial investment, he revealed.
A forex risk cover will be given by the Central Bank, to foreigners who invest in rupee bonds up to two years.
Finance State Minister Ajith Nivard Cabraal disclosed in Parliament recently that the government will be providing the foreign exchange risk cover for foreigners as an incentive to them to buy rupee bonds.
These new facilities are applicable only if foreign exchange inflow to the country is subject to a minimum investment of US$25 million and a maximum of $1000 million.
In the case of depreciation of the exchange rate of the US Dollar against the Sri Lanka Rupee during the applicable period, the Central Bank will compensate the loss incurred when transferring its dividends to the Treasury in the future.
This is because any loss that could be incurred to the Central Bank is considered as a cost to the Treasury.