HSBC Treasury Management Profiles 2018 -

Current section, Introduction

Introduction

Sri Lanka is one of the fastest-growing economies in Southeast Asia. Annualised economic growth averaged 6.2 per cent between 2010 and 2016, even as Sri Lanka transformed from an agrarian-based economy to a manufacturing and service-driven economy – in 2017, the services sector accounted for approximately 61.7 per cent of GDP. Sri Lanka exports mostly textiles and clothing; in 2017, textile and garment exports increased 3 per cent year-on-year to USD5.03 billion (exports for the year totalled USD11.4 billion, a 10 per cent year-on-year increase). Exports were bolstered by the restoration of the Generalised Scheme of Preferences Plus (GSP+) duty-free trade facility by the European Union, which removed duties on 66 per cent of tariff lines imported from Sri Lanka. Broadening the country’s export base is seen as essential in order to capture more value from the products that are exported from Sri Lanka, as well as to increase employment and attract greater export-driven investment. In February 2018 the government launched a new national export strategy focused on competitiveness and product diversification. In the same month, it unveiled a three-year Economic Delivery Programme to increase per capita income to USD5,000, create one million new jobs, and increase FDI to USD5 billion per year (FDI for 2017 reached USD1.6 billion). Economic growth is projected below 4 per cent for 2017 – extreme weather conditions, for example, severely affected the country’s agricultural sector. The IMF forecasts full-year growth of 4.8 per cent in 2018.

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Legal and regulatory

  • Foreign exchange and domestic currency (LKR) accounts can be held by residents both domestically and abroad. Resident domestic currency accounts are convertible into foreign currency
  • Non-resident bank accounts are permitted in foreign and domestic currency, subject to central bank approval. Non-resident domestic currency accounts are convertible into foreign currency
  • Sri Lanka is a member of the Asian Clearing Union (ACU). Transactions between Sri Lankan residents and residents of other ACU member countries, except Bhutan and Nepal, are carried out in AMU dollars (equivalent to USD) or AMU euros (equivalent to EUR)

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Taxation

  • Resident companies are taxed on their worldwide income
  • Non-resident companies are taxed on Sri Lankan-sourced income only
  • Effective 1 April 2018, a three-tier corporate income tax applies:
    • A higher 40 per cent rate on income from betting and gaming, liquor, and tobacco;
    • A lower 14 per cent rate on income from small and medium enterprises (SMEs) having an annual turnover up to LKR500 million, exports of goods or services, agricultural business, undertaking for promotion of tourism, information technology services and educational services subject to having 80 per cent or more gross income from such sector; and
    • A standard rate of 28% on income of all other sectors including banking and finance, insurance, leasing and related activities.

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Payment instruments and systems

  • Cash is an important payment medium in Sri Lanka, particularly for low-value retail transactions, accounting for 90 per cent of retail payments. In volume terms, cheques are an important cashless payment instrument, used for both retail and commercial payments. Cheques can be denominated in LKR and USD. Electronic credit transfers are used for both high-value corporate and low-value retail payment transactions. Payment card use, particularly of debit cards, is rising, accounting for 40.5 per cent of all cashless transactions
  • Sri Lanka operates six national payment systems: LankaSettle, an RTGS system; SLIPS for low-value electronic credits and debits; CIT for paper-based payments; CEFTS for electronic bank transfers; the Rupee Draft Clearing System; and the US Dollar Cheque Clearing System

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Cash management

  • Domestic notional pooling and cash concentration are permitted
  • Cash and cheque collection services are offered by security service providers

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Electronic banking

  • Electronic banking is available in Sri Lanka. There is no bank-independent electronic banking standard
  • Internet and mobile banking services are provided by the country’s larger banks for both corporate and retail purposes. There were 18.1 million payments conducted via online accounts in 2016, with a total value of LKR1,589 billion
  • JustPay is a mobile phone-initiated real-time retail payment transfer system for payments of LKR10,000 and under. Customers can use the service to make payments from savings or current accounts via smartphone

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To read the full report on Sri Lanka and to discover more on these and other topics, including banking and trade, please click on the Download PDF option.

Sources:

  • Department of Census and Statistics
  • International Monetary Fund
  • Sri Lanka Export Development Board
  • Sri Lanka Board of Investment

The materials contained on this page were assembled in June 2017 (unless otherwise dated).

 

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