The Central Bank of Sri Lanka has approved a new type of bank account to attract capital from overseas. The funds can be used only to set up businesses, not import raw materials. The authorities hope to get credit from China.
Colombo (AsiaNews) – The Central Bank of Sri Lanka (CBSL) has approved a special type of bank account, the Colombo Port City Investment Account (CPCIA), for business activities in the Chinese-built Special Economic Zone (SEZ) near Colombo Port City.
To this end, all Sri Lankan banks were issued directives for two types of CPCIA accounts, one for investors and one for investees.
These accounts can be used by businesses to attract foreign capital, set up businesses, stimulate profits and attract funds to Colombo Port City, also known as the “financial city”. The money to be invested in the SEZ can be held in foreign currency.
These "accounts can only receive money from overseas,” a Finance Ministry spokesperson told AsiaNews. “This is the main thing because that is in the spirit of the Colombo Port City Economic Commission Act which rules that, for any development activity to be done, the money must be from overseas. The funds are to be used for investments in the Port City."
As these accounts cannot be used to import goods into Sri Lanka, they must be used “for business-related investments in the Port City, including capital expenditures on construction or payment of fees or services related to the Port City entity. Payment is through electronic transfer.”
At present, “groundwork is being prepared for banks to be set up within the Port City,” said a Commission spokesman. These banks will be allowed to carry out “business within its area of authority.” Six local banks have already expressed interest in the project.
Several business and political analysts expect the Colombo Port City to attract various businesses in future once it is up and running.
The Monetary Board of Sri Lanka (MBSL) and the Finance Ministry have already given the green light to certain banks and financial institutions, provided that they meet certain pre- and post-operational conditions.
For now, the banks that have expressed interest are “reviewing those conditions and are in the process of working through them.”
A CBSL spokesperson told AsiaNews that the Port City's financial institutions will be governed by rules and regulations issued by the Commission, not by the CBSL, although the guidelines will be drafted in consultation with the MBSL and the Finance Ministry.
According to a Finance Ministry spokesperson, experts conducted benchmarking studies on several overseas financial cities, looking, for example, at “how the Dubai Financial Services Authority runs" as well as several other SEZs in Malaysia, Mauritius and elsewhere, with the aim of setting up a streamlined regulatory framework in line with these studies.
This move has not been without its critics, as many believe that SEZs could undermine Sri Lanka's sovereignty.
Meanwhile, “Sri Lanka is continuing negotiations with China for approximately US$ 4 billion in aid,” a Foreign Ministry source reported; hopefully, Beijing will agree "”at some point”.
Sri Lankan authorities have sought “a US$ 1 billion to repay an equivalent amount of Chinese debt due this year,” as well as a “.5 billion credit line to pay for Chinese imports and activation of a .5 billion currency swap.”