Sri Lanka limits foreign currency possession by individuals to support dwindling forex reserve

Representative Image (Image: AP)

Sri Lanka has reduced the limit of foreign currency possession by an individual from USD 15,000 to USD 10,000, in a desperate move to shore up its fast-depleting forex reserve required to fund the import of essentials, including food and fuel.

Sri Lanka is facing a severe forex crisis which forced the island nation to declare a default of its international debt in April, becoming the first Asia-Pacific country in decades to default on foreign debt.

With the intention of attracting foreign currency in the hands of the public into the formal banking system, Minister of Finance Ranil Wickremesinghe issued the order under the Foreign Exchange Act.

Reducing the amount of foreign currency retained in possession by a person in, or resident in, Sri Lanka from USD 15,000 to USD 10,000 or its equivalent in other foreign currencies, an official statement said.

An amnesty period of 14 working days from June 16, 2022 has been granted to deposit the excess foreign currency or sell to an authorised dealer. The move came over a month after Governor of the Central Bank of Sri Lanka Nandalal Weerasinghe said that the apex bank was looking towards bringing the limit of holding foreign currency down to USD 10,000 from USD 15,000.

The Governor had said that even with USD 10,000, proof of possession must be presented. Sri Lanka is facing the worst economic crisis since independence in 1948 which has led to an acute shortage of essential items like food, medicine, cooking gas and fuel across the country.

After Colombo declared a default on loans in April, US bank Hamilton Reserve, a holder of Sri Lankan bonds, filed a lawsuit in the US district court in Manhattan over the breach of contract. Sri Lankans languish in long fuel and cooking gas queues as the government is unable to find dollars to fund imports.

Indian credit lines for fuel and essentials have provided lifelines until the ongoing talks with the International Monetary Fund (IMF) could lead to a possible bailout. There have been street protests in Sri Lanka against the government since early April due to its mishandling of the economic crisis.

On May 9, the political crisis saw the unleashing of violence with 10 people, including a parliamentarian, being killed. President Gotabaya Rajapaksa's elder brother Mahinda Rajapaksa had to resign as prime minister amidst the political and economic turmoil.