Sri Lanka’s worker remittances have come down to 60 percent from a year earlier to US$325.2 million in December 2021 with foreign exchange diverted to the unofficial market as money printing undermined the credibility of a 200 to the US dollar,economic analysts said
Full year 2021 official remittances were down 22.7 percent to 5,491.5 million US dollars.
Sri Lanka’s official remittances started to fall as money printed by the central bank to keep interest rates down was used up in the economy, driving imports up and foreign exchange controls were tightened, creating a demand parallel market dollars they claimed.
Expatriate workers are in the practice of sending money using informal channels like the Undiyal/Hawala net settlement markets as it used to pay them at the exchange rate of around 240/250 rupees per dollar , making it an attractive path for them.
Sri Lanka’s Central Bank is offering Rs.10 extra for official transactions in a bid to wean expat workers away from the net settlement systems.
Analysts have urged the Central Bank to hike rates to stop printing money which creates foreign exchange shortages and boosts import demand.
Though policy has improved from September with money no longer printed to maintain excess liquidity in money markets to target call rate below the ceiling, interventions are sterilized with new money.
Official data indicated that Sri Lanka had received 5.5 billion US dollars in worker remittances last year.This has been recorded as a 22.7% drop from 7.1 billion US dollars in 2020.
Sri Lanka had received workers remittances of 6.7 billion US dollars in 2019 and 7 billion US dollars in 2018.
In a period of decreasing reserves and foreign exchange shortages, migrant worker remittances had once been a welcome stream of income for Sri Lanka in fulfilling its foreign exchange shortfalls.
With the recent sharp fall in remittances, the ongoing situation is causing chaos in the island nation’s mission to increase foreign exchange revenues.
Nearly 1.5 million of the country’s labour force, ranging from unskilled to skilled and professional, migrate for employment purposes.
These workers frequently contact their families and send home part of their earnings and occasional goods.
These remittances, that trickle down to the larger economy, have been a vibrant component that balances out the island nation’s foreign exchange position in respect to the rest of the world.
At a time when the external sector is confronted with daunting challenges such as depleting foreign exchange reserves and a stumbling dollar-rupee exchange rate, there has recently been a sharp drop in remittances, making the efforts to get on top of the country’s forex crunch an uphill battle.
As of October 2021, Sri Lanka’s remittances receipts have dropped 14 percent compared with the respective period of 2020.
This divergence has become increasingly acute in recent months, with inward remittances in September and October 2021 falling sharply to USD 353 and 317 million, respectively, the lowest levels for both months since 2010 and 2009.