Margin deposits on LCs introduced after 33 years

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Central Bank of Sri Lanka (CBSL), effective from today (20), will implement margin deposits on Letters of Credit (LCs) opened for non-essential imports with the twin fold objective of curbing further depreciative pressure on the rupee and also to prevent further deterioration of the country’s foreign reserves which have fallen to USD 1.8 billion, of which USD 1.5 billion comprise a conditional Chinese swap, CBSL Governor Dr. Nandalal Weerasinghe told reporters yesterday (19).

Sri Lanka last imposed margin deposits or advance payments on LCs 33 years ago in 1989 when President Ranasinghe Premadasa was in power and when the country was in flames, complemented by the JVP insurgency in the South and the IPKF and the LTTE running amok in the North and East.

Weerasinghe, speaking further at a press conference held at CBSL Headquarters, Colombo, said in consultation with the Finance Ministry, laws, vis-à-vis the Foreign Exchange (FX) Act, will be promulgated to limit the keeping of US dollars outside the banking system from the current USD 15,000 to USD 5,000; where, the breach of these regulations will result in the confiscation of the totality of such FX (dollars).

Such currency, within the maximum period of two weeks, will either have to be deposited into a foreign currency account or converted to rupees under these new laws, the Governor said.

With reference to the dishonouring by the Government of Sri Lanka of a foreign currency loan, which repayment fell on Wednesday (18), Weerasinghe said they had already informed markets, i.e. on 12 April 2022, that Sri Lanka will not be in a position to honour such loan repayments due to a liquidity crisis.

By Paneetha Ameresekere