The Central Bank (CB) has withdrawn the payment of 20% bonus interest on Resident Foreign Currency (RFC) and Non Resident Foreign Currency (NRFC) accounts from October 1 to reduce the burden on government expenditure.
A senior CB official told the Sunday Times FT that with the country’s foreign reserves improving, there is no necessity to continue with this incentive payment.
Parliamentary approval was given in June this year to a supplementary estimate of Rs. 1.5 billion to meet the expenditure on the payment of the bonus interest on these accounts and payment of interest premium for "Economic Resurgence Certificates."
He disclosed that the Central Bank has not completed the computing of the total expenditure incurred for the payment so far as the final accounts of commercial banks are not finalized as yet . “This scheme provided an extra incentive to Sri Lankan workers remitting money to the country as well as RFC account holders such as exporters who make a valuable contribution to the country," he said. The bonus interest was paid in rupees.
The CB official said that this scheme was introduced when Sri Lanka’s reserves took a hit after the global financial crisis caused more outflows than inflows. In July 2008, gross reserves stood at US$ 3.5 billion but by end 2008, reserves declined to US$ 1.7 billion.
Now foreign reserves have hit a historic high of $4 billion, sufficient to cover over four months of imports, "With the renewed investor confidence and the continuation of the steady increase in foreign exchange inflows, the country's external reserve position is expected to strengthen further in the coming months,” he said.