2026-03-03 / Debate: Foreign Exchange Act Order under Section 22 of the Foreign Exchange Act, No. 12 of 2017 2026-03-03
## Summary
Hon. Kugathasan delivered a detailed speech supporting the regulation gazetted on 17 February 2026 under Section 22 of the Foreign Exchange Act, No. 12 of 2017, which partially relaxes restrictions on outward remittances while maintaining safeguards on foreign exchange reserves during Sri Lanka's post-crisis recovery. He outlined the key provisions, including investment limits of USD 500,000 for listed companies and USD 150,000 for unlisted companies, and noted that this marks a significant shift from the full suspension of Outward Investment Accounts that was in place from 2020 to 2024. The speaker contextualised the regulation by comparing the 2017 Act with the predecessor Exchange Control Act of 1953, highlighting the shift from a punitive, state-controlled regime toward a liberalisation-oriented framework. He also identified several ongoing concerns — including unpredictability caused by frequent temporary orders, mandatory export proceeds conversion, and investment caps he considered insufficient — and benchmarked Sri Lanka's framework unfavourably against India's FEMA regime and Singapore's fully liberalised system, calling for further reforms to position Sri Lanka as a regional financial hub.
Hon. Deputy Speaker, I wish to present my views on the regulation under the Foreign Exchange Act placed before Parliament for approval.
Foreign exchange management has historically functioned as a tool to gauge Sri Lanka’s economic condition. The regulation now before the House comes in the context of post-crisis recovery and the recent natural disaster—both external shocks—and is a priority measure. Gazetted on 17 February 2026 under Section 22 of the Foreign Exchange Act, No. 12 of 2017, it is proposed on the recommendation of the Central Bank to preserve stability in the financial system. Section 22 serves as a regulatory safeguard, empowering the Minister of Finance to temporarily suspend or restrict specified outward remittances to protect foreign exchange reserves while maintaining financial stability. This adjustment supports the global expansion of Sri Lankan companies while ensuring that official reserves are not impaired. Even as we protect reserves, limits for outward investments have been significantly relaxed.
Companies listed on the Colombo Stock Exchange are permitted to invest up to USD 500,000 abroad, facilitating vertical integration and expansion in manufacturing. For unlisted companies the limit is USD 150,000. Compared with previous suspensions, this is a notable increase and will help SMEs establish a regional footprint. For new overseas offices, remittances up to USD 100,000 are permitted to cover setup, marketing and staffing; for existing offices, up to USD 30,000 for operating expenses, addressing working capital needs. From 2020 to 2024, Outward Investment Accounts were fully suspended; this regulation marks a significant shift by allowing capped investments.
The order also adopts a cautious stance on resident remittances repatriating funds. While restrictions on some current transfers by residents have been eased, capital transfers remain tightly managed. For first-time resident investors, the limit is USD 100,000—reduced from USD 200,000 under the 2021 regime.
To understand the current order, we must compare the 2017 Act with its predecessor, the Exchange Control Act, No. 24 of 1953. The 1953 Act, designed for a closed economy, treated all foreign exchange as a national asset under tight state control. The 2017 Act was built on the principle that foreign exchange earners—exporters and service providers—own their earnings, with the state acting as regulator and facilitator.
Key policy shifts between the 1953 and 2017 laws include:
- Nature of contraventions: Criminal offences with imprisonment under 1953; converted to civil violations with no imprisonment under 2017.
- Time-bound investigations: The 2017 Act imposes a six-month deadline for completing investigations.
- Institutional focus: The 1953 regime established a supervisory exchange control department; the 2017 law created the Department of Foreign Exchange with a mandate to implement and facilitate, reflecting a move towards liberalization.
Yet both the 2026 order and the broader framework face criticism:
- “Midnight gazettes”: Frequent temporary orders under Section 22 create unpredictability for long-term investors.
- Export proceeds: The 180-day repatriation rule and mandatory conversion of residual balances into rupees impose unnecessary costs on exporters.
- Investment caps: USD 500,000 and USD 150,000 limits may be inadequate for Sri Lankan manufacturers to scale globally.
Compared with India and Singapore, Sri Lanka remains more restrictive. India’s FEMA is more progressive: exporters have up to 15 months to realize proceeds (more flexible than our six months), and individuals may remit up to USD 250,000 annually (vs. Sri Lanka’s USD 100,000 for first-time outward investors). Singapore scrapped all foreign exchange controls as far back as 1978; residents and non-residents can transfer freely without restrictions.
To address criticisms and strengthen Sri Lanka as a regional financial hub, I recommend:
- Customs modernization and a National Single Window for trade to reduce delays in FX approvals.
- Phased removal—within five years—of para-tariffs such as the Ports and Airports Levy and CESS.
- A national digital ID (planned for 2026) to digitize finance and track FX flows more efficiently.
Hon. Deputy Speaker, the order placed before Parliament in 2026 is a necessary and rational step in Sri Lanka’s economic journey.