Overseas investments on hold to avoid BOP crisis

central bankSri Lankan Central Bank Governor Arjuna Mahendran said he was delaying giving approval to proposals for overseas investments by local firms to prevent a balance of payments crisis.
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Sri Lankan companies want to invest abroad because domestic returns were low, Mahendran said.

The Central Bank wants to abolish the exchange control act, but liberalising capital outflows at this stage was too risky, Mahendran told a forum organised by the Shippers’ Academy Colombo.

The Central Bank has got over 200 applications from local firms for overseas investments including for Maldivian hotels, banks in Bangladesh and hydro-electric projects in Rwanda, he said.

“I agree that Sri Lankan investors should be able to deploy capital in the most profitable manner,” he said in response to a question.

“If I allow all that money to flow out, we’ll lose about $2 billion in a flash. My reserves are at $6.5 billion and I’ll have only around $4 billion left. Then we’ll have a balance of payments crisis.”

“That’s why I have been holding back giving approvals (for overseas investments).”

Mahendran said the position should improve later in the year with more tourism earnings and foreign direct investment.

“Hopefully tourism will start generating high yields, although we haven’t seen that yet as room rates are still low. I hope by year-end we’ll see more FDI and then we can start liberalising capital flows.” (Economy Next)

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