CBSL keeps $ 750,000 outward investment cap, targets 2027 end to restrictions

The Central Bank of Sri Lanka (CBSL) has kept the cap on outward investment by Sri Lankan companies at $ 750,000 for a further six months and plans to phase out its crisis-era capital controls by 2027.

The Order, issued under Section 22 of the Foreign Exchange Act, has been renewed every six months since the 2020 balance of payments crisis. It suspends the general permission limits for residents investing abroad. Listed companies may convert rupees and invest up to $ 750,000 or 20% of net assets, whichever is lower, and non-listed companies up to $ 200,000, against $ 2 million and $ 500,000 a year under the general permission.

Companies may invest beyond the cap, up to $ 2 million, if the excess is financed through foreign borrowing or equity raised abroad. Larger investments require special approval, which a CBSL official said had been granted case by case for investments exceeding $ 2 million in Kenya, Bangladesh, and other countries. Business Foreign Currency Account (BFCA) holders may invest up to $ 500,000 and Personal Foreign Currency Account (PFCA) holders up to $ 225,000. Licensed commercial banks and licensed finance companies face no cap, subject to their regulator.

A CBSL official recently told the Committee on Public Finance (CoPF) that bank had proposed raising the cap and submitted a phase-out plan to the Ministry, but deferred the increase when the Middle East conflict tightened market conditions in April and May. The curbs would be eased in phases, depending on market conditions. A CBSL official said companies would certainly take money out if the Order were removed now.

Foreign Exchange Regulations No. 01 of 2026, which replaces the 2021 regulation on overseas investment by residents, introduces an additional allowance for exporters, who may invest abroad 10% of export proceeds brought into the country and converted, over and above the cap. Earnings repatriated from overseas investments may be invested abroad again without counting against the limit.

Investment remains confined to ordinary shares, excluding preference shares, Corporate Bonds, debentures, and Sovereign Bonds. CoPF Chairman MP Dr. Harsha de Silva questioned the restriction, arguing that with the amount already capped, the type of instrument was immaterial, since ownership could be acquired through other instruments. A CBSL official said the policy priority was business expansion, with ordinary shares giving the local company control over the foreign entity. Portfolio investment could be allowed later, the official said.

Money must leave through a single Outward Investment Account, and all income and divestment proceeds must be repatriated within one month of realisation. Banks will be required to monitor whether returns are brought back. Shares received abroad for no consideration are also covered.

Funds borrowed abroad to finance overseas investment must now carry a minimum tenor of five years, up from three. A CBSL official said the regulation governing external commercial borrowing, which currently sets only a tenor requirement, was being revised, partly because some borrowers had taken loans at excessive interest rates. The revised regulation is expected in a few months.

Outward investment stood at about $ 58 million in 2019 and fell sharply through 2022 before recovering after the controls were eased from June 2023. It has reached $ 26 million so far this year, and a CBSL official said the full-year figure could reach $ 35 million to $ 40 million. The CBSL has not estimated the returns it expects outward investment to bring back to the country. A CBSL official said this was a business decision.