Forex starved Sri Lanka raises SDA interest by 2%

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The Government has increased the interest rate provided for Special Deposit Accounts (SDAs) by a further 2% for a period of 10 months in the face of dwindling reserves, The Morning Business learns.

Speaking to us, Secretary to the Treasury S.R. Attygalle stated that depositors would be paid an extra 2% interest above the existing market rate.

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Secretary to treasury & finance: S. R. Attygalle

“The SDA facility was initiated in April 2020; I think, it has been extended to April 2022,” said Attygalle, explaining that SDAs that have been reinvested for more than 12 months will be paid an interest of 4%, in total per annum, above the normal rate.

Responding to our inquiry regarding the amount of capital that has been collected thus far, Attygalle stated: “About two months ago, it was around $ 400 million,” although he noted that he was unsure of the exact value.

According to the official government news portal report on Cabinet decisions issued on 05 April, deposits in SDA accounts totalled $ 360.3 million by 31 March 2021.

Orders were issued under the Foreign Exchange Act No. 12 of 2017 to open SDAs, with the objective of attracting the remittance of foreign currency into the country. 

Also, due to the predictable forex crisis with the absence of flow of foreign currency into the country with the prevailing pandemic, Sri Lanka submitted a request for funding to the International Monetary Fund (IMF) under its Rapid Financial Instrument (RFI) facility in April 2020.  

Cabinet approved the proposal tabled by Prime Minister Mahinda Rajapaksa, in his capacity as Minister of Finance, to make an order as per the terms of Section 7(1) of the Foreign Exchange Act No. 12 of 2017 to include the provision for the increased rate of interest on SDAs.

Thus, the provisions allow for the payment of an additional rate for SDAs that have been reinvested for a period of more than 12 months, as the existing provisions only included the possibility of reinvesting the SDAs for a term of six months and 12 months.

According to the Central Bank of Sri Lanka (CBSL), an SDA is a fixed deposit with a minimum tenure of six months, and it can be opened in the following currencies: Sri Lankan Rupee, United States Dollar, Euro, Sterling Pound, Australian Dollar, Singapore Dollar, Swedish Kroner, Swiss Franc, Canadian Dollar, Hong Kong Dollar, Japanese Yen, Danish Kroner, Norwegian Kroner, Chinese Renminbi, or New Zealand Dollar. 

For a six-month deposit, a higher interest rate than the rate offered by any licenced commercial bank or national savings bank for normal fixed deposits is payable at maturity, at 1% per annum, while 12-month deposits see an even higher rate of 2% per annum.

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