Value of the rupee against USD to remain stable in Q4 2021

By Sanath Nanayakkare

The Central Bank would make efforts to maintain the Rupee at the very competitive level of Rs. 199 to Rs. 203 against the USD over the next three months and would be reviewed thereafter, the Central Bank said unveiling its six-month Road Map on Friday.

The Central Bank is poised ensure forex inflows into formal channels with the use

of existing and restored licenses and will act to avoid informal, and/or illegal channels of forex inflows and outflows thus disallowing parallel market activity at diverse exchange rates

In managing foreign exchange reserves, due regard will be paid to the differential between building reserves through borrowing and investing in low-yielding global assets.

With regard to resolving debt and forex issues in the banking/ non-bank sector, plans are afoot to mobilise fresh forex funding on competitive terms based on the strength of the bank’s / financial institution’s own balance sheets. The target for this has been set at USD 1.5 bn.

Further, forex positions will be closely monitored while prudently screening the forex outflows with the implementation of the Tax Amnesty through the Finance Act.

At the same time, forex investments will be encouraged in government securities and Sri Lanka Development Bonds.

Essential imports will be facilitated wherever possible while engaging with counterparties to dampen undue speculation on the debt situation and enhance their knowledge on the Sri Lankan economy and the financial system.

Foreign investors will be supported to invest in non-bank sector institutions while also supporting the establishment of equity funds for SMEs.

The repatriation and conversion of proceeds of services exports and adherence to systems that monitor forex flows related to services will be ensured.

Support will be extended to prepare for the resumption of tourism, and ensure the repatriation and conversion of earnings

Moves will be taken to avoid speculative demand for imports and the build-up of large inventories thus ensuring the supply of goods to the domestic market with a reasonable profit, rather than generating super-normal profits through speculative price increases.

Utilising domestic inputs will be encouraged to diversify businesses with a greater focus.

New opportunities are being explored through investment in production for the domestic and export markets. Increased domestic investment and partnerships with foreign investors will be facilitated in dedicated industrial zones.

Campaigns will be expanded to attract foreign investors for Sri Lankan real estate, including condominiums.

Foreign investment in Sri Lankan real estate will be promoted based on the resident/long-term visa incentives, as well as investment in warehousing, plug & play services, and dedicated zones for IT.

With the return of stability in the forex markets and the interest rates opportunities will open up for investment and expansion With the passing of the new SEC Act investments into listed corporate debentures will be more attractive For resolving debt and forex issues of the government, the target is to increase to exports to above USD 1.0 bn per month, on average during the remainder of 2021.

High-level discussions with respective governments to secure short to medium term G2G financing to buttress inflows (short-term target: USD 1.0 bn; Next 3 months: USD 500 mn).

Monetising selected non-strategic and under-utilised assets to accrue USD 1.0 bn. Publishing Port City Commission by-laws to attract FDIs into the Colombo Port City Facilitating inflows from the implementation of the Tax Amnesty through the Finance Act (Target: USD 100 mn).

Rebasing GDP (which is overdue by 1 ½ years) without further delay, to reflect the true size of the economy.

Introducing appropriate tax adjustments to promote domestic value addition of exports and ensure conversion of export earnings; Discouraging forex leakages through online and informal channels Considering to introduce a mechanism to allow the import of motor vehicles to Sri Lanka using foreign earnings or FDI, with relevant taxes being paid to the Government in forex.

The contents of the Road Map of the Central Bank thus signals a business-friendly budget in November 2021 with detailed financing strategies.