Cash strapped Sri Lanka is making untiring efforts to boost its foreign reserves trying anything and everything in and outside the book to boost dwindling foreign reserves now amounting US$1.2 billion, several eminent economists said.
A plan by the Central Bank to attract foreign remittances from formal channels is unlikely to fix the country’s precarious financial position, they pointed out.
The Monetary authority announced on Friday 24 its decision to extend additional incentives for inward workers’ remittances following requests made by Sri Lankans employed abroad.
CB said it will continue the payment of additional Rs. 8.00 per US dollar for worker remittances, paid in addition to the incentive of Rs. 2.00 per US dollar under the ‘Incentive Scheme on Inward Workers’ Remittances’.
This incentive will be applicable for remittances that are; channeled via licensed banks and other formal channels, and converted into Sri Lanka rupees. The incentive will be offered till 31 December 2021.
“The decision to continue this additional incentive of Rs. 10.00 per US dollar is in response to the favourable developments observed in workers’ remittances so far during December 2021,” the CBL said in a statement to the media.
Furthermore, the CB announced it will also bear the transaction cost incurred by Sri Lankans working abroad up to a defined limit when remitting their money to Sri Lanka through exchange houses and/or banks.
It also warned it was working to “curtail informal fund transfer channels,” commonly referred to as “hawala” systems, to push more remittances through formal sources and to banks.
“[The bank] urges all migrant Sri Lankans to use only legal channels to repatriate their earnings,” tweeted Central Bank Governor Ajith Nivard Cabraal.
The island nation is scrambling to shore up forex reserves to meet over $4 billion in debt repayments due from January 2022 .
Remittances are Sri Lanka’s second largest source of foreign exchange behind merchandise exports. Inflows hit $7.1 billion in 2020, bucking expectations of a pandemic contraction
The Central Bank said that around 230,000 people migrate for employment annually and, with the easing of travel restrictions post-vaccination, a higher number were queuing up to take up overseas jobs.
The rush to return is also evident from those who evacuated in the early days of the pandemic from their country of work.
“CB authorities have had discussions with the Department of Immigration and Emigration to clear the backlog in issuing passports as well,” CB Governor Nivard Cabraal told journalists, adding that there are plans to offer insurance as well as pensions to migrant workers.”
Despite recording over $ 500 million per month consecutively from June 2020 till April 2021, workers’ remittances moderated in recent months.
This led to workers’ remittances in the first 10 months of 2021 declining by 14% to $ 4.9 billion from the corresponding period of last year.
Inflows in October more than halved to $ 317 million (lowest in recent years) from $ 630.7 million a year ago. The forecast is for full year 2021 inflows to be lower than last year’s $ 7.1 billion.
The large exchange rate anomaly between official and unofficial channels until October, which drove drives foreign exchange earners to use unofficial channels, and the dwindling number of departures were cited as major contributing factors for the decline.
CBSL said it will now implement the ‘SL-Remit’ mobile application with the assistance of stakeholders, including the Ministry of Finance, Ministry of Foreign Affairs, Sri Lanka Banks’ Association, Sri Lanka Bureau of Foreign Employment, and LankaClear Ltd.