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.

Sri Lanka is to hold Independence Day celebrations in diplomatic missions overseas in simple ceremonies for the first time in the recent past due cut down in expenditure by the foreign ministry as the result of dollar crisis, ministry directive revealed.    

In a Letter issued by the foreign ministry to all folrerign missions, It has directed all these mission heads to conduct these independence day celebrations in a low key with limited participation of Sri Lankan expatriates   

Sri Lankans living in foreign countries have been restricted from participating in Independence Day celebrations at all Sri Lankan embassies and high commissions abroad, according to the letter sent by the ministry.  

Foreign Ministry has nowidirected all foreign diplomatic missions to hold celebrations without the attendance of guests due to dollar constraints.

In this circular to heads of missions overseas, Foreign Secretary Admiral (Retd) Jayanath Colombage had issued instructions relating to holding celebrations to mark Sri Lanka’s 74th National Independence Day.

Accordingly, permission has been granted by the Foreign Ministry to hold the Independence Day activities “at low key, with the participation of the mission staff.”

Foreign Ministry sources said that Foreign Minister G.L. Peiris had also informed the diplomatic missions to refrain from inviting guests for events due to attempts to cut costs.

Hundreds of Sri Lankans abroad were in th practice of visiting Sri Lankan embassies and high commissions overseas d to mark the country’s Independence Day while foreign Missions, especially in the Middle East, often receive the large number of guests on the day.

Meanwhile, in another communique issued on January 12, foreign secretary Colombage had also informed Heads of  Foreign Missions that a decision has been taken to temporarily suspend the reimbursement of the representational allowance given to diplomatic missions.

The representational allowance granted to Diplomatic Missions are used for important activities such as strengthening ties with the authorities of each country, promoting Sri Lanka’s tourism, trade, political, economic and security ties, and presenting official gifts at diplomatic meetings.

Foreign Ministry pointed out that while all related expenses are audited, these expenses incurred by the Missions are only reimbursed after the presentation of bills to the Ministry. 

According to the circular issued by the ministry, the same set amount has been dispensed to all Sri Lankan Missions since 2001.

“For example, the maximum representational allowance granted for the Mission in Seoul, South Korea, one of the most expensive cities, is US$ 700 per month but it isn’t sufficient to cover expenses for a week,” informed sources added.

Meanwhile, it has been revealed that Heads of Foreign Missions had been informed that they are allowed to exceed the limit of the allowance on ‘special occasions’ but many had been turned down despite making requests to exceed the allowance when necessary.

Sri Lanka is to import to import 300000 metric tonnes of rice, the largest  stock in a decade to meet the shortage expected this year due to ill advised green farming policy .

The economically troubled government has committed a major blunder by banning chemical fertilizers heeding to ill advised and foolish  policy without preparing farmers, prompting a massive surge in rice and its prices and worries about shortages, several agriculture experts said.

This   ill conceived green farming concept confined to Sri Lanka which is not being practiced fully by any other country in the world has forced the country’s trade ministry to import the largest stock of rice setting a record for the first time in a decade, official data revealed.  

The ministry is now taking measures to import 300000 metric tonnes of rice with a cabinet approval granted in its first meeting this year held on Monday 10 spending around US$ 134 million amidst a severe dollar crisis at present. 

This stock is sufficient for the peoples consumption for only three weeks, economic analysts said adding that it was unclear as to how the government is going to find dollars for imports. 

According to Central Bank statistics the country has imported the largest stock of 748000 metric tons of rice at a cost of $ 301 million previously in the past decade during the period of 2011 -2020.

The government will grant permission for local importers also to bring down rice as the treasury has reduced the tax on rice to 25 cents from  Rs 5 per kilogramme, Trade Minister Bandula Gunawadena said.

Under this set up an additional stock of 500000 mt of rice will be imported via State Trading Corporation with the aim of maintaining the price of rice at the level Rs.105 per kilogramme, he pointed out.

Meanwhile around 500 containers of rice were still stuck at the Colombo board waiting for clearance due to dollar issues, he added.

According to agriculture experts  in the research field, it was revealed that the percentage of paddy harvest would reduce by a percentage of 21.5-31 percent if the fertilizers are not used.

President Gotabaya Rajapaksa has stopped the importation of chemical fertilizers, due to the negative consequences caused on human lives through pollution of lakes, canals, and groundwater outweighing the profit.

 “In the year 2020, the country had a record amount of harvest and 783,000 hectares of rice had been cultivated out of a target of 846,000 hectares, higher than last year’s 752,000 hectares. 

Sri Lanka produced 3.051 million metric tonnes of paddy in 2019 in the Maha season and another 1.751 million metric tonnes in the minor Yala season. 

Every year farmers expect 3.5 million  tonnes of paddy harvest. However, it was exceeded in 2020. They  got more than 5 million  tonnes of paddy harvest .

By Qadijah Irshad

Fathima Aroos looks across her two young children and whispers: “I’ve told them it’s Ramadan now and that’s why we are fasting. Don’t tell them otherwise.”

Fathima and her children, aged five and six, live in the suburbs of Sri Lanka’s capital Colombo. Her husband Rafeek Aroos is a 36-year-old daily wage earner with a history of depression. Because they can’t feed their children three meals a day due to the accelerating cost of living in Sri Lanka, she pretends it’s Ramadan now.

“This way, we can manage with a plain porridge after we break our fast and rice soaked in water and onion for suhoor (the early morning meal),” says Fathima. “It keeps the children quiet.”

Fathima is not the only one struggling to make ends meet in a country where the economy is crumbling. In the Kalpitiya area in northwestern Sri Lanka, bordering one of the world’s most beautiful beach destinations, entire clusters of villages are starving.

“We go hungry most of the time now. Just some fish that someone is kind enough to hand out to us because what I earn is not enough to buy food anymore,” says Rahmath Niyas, a single mother who is surrounded by three crying children. In other thatched homes of fishermen and daily wage earners, parents sit listlessly, while their children cry out of hunger.

The tourism-dependent island has been hit hard by the Covid-19 pandemic and what critics call “imprudent government decisions”.

The import-reliant island nation is facing a severe dollar crunch, which reports say have left it on the brink of bankruptcy as inflation rises to record levels.

This means further food scarcity in a nation where even the lower middle class has resorted to two meals a day. Sri Lanka has an outstanding debt of $7 billion to be repaid in 2022. By January 18, Colombo must repay $500 million, and another $1 billion in July.

Writing in Colombo Gazette, Suhail Guptil said that Sri Lanka has been continuously facing twin deficits — that is, fiscal deficit and trade deficit — during the major part of the last decade. Since 2014, Sri Lanka’s foreign debt level has been on the rise and reached 42.6 per cent of GDP in 2019.

Guptil explained that the cumulative foreign debt of the country was estimated at $33 billion in 2019, which puts a huge burden on the country for debt servicing.

The US credit rating agency Fitch gave Sri Lanka the lowest CC rating last month, a fresh blow to a country that has never defaulted despite its mounting foreign debts over the years. But this year might be the end of that clean record, say economists.

On Wednesday, Colombo ruled out an International Monetary Fund (IMF) bailout that local and international economists have been calling for.

At a press conference, the governor of the Central Bank, Ajith Nivard Cabraal, told reporters that the country would rather seek new loans from China, to which it is already heavily indebted rather than go to the IMF.

“The IMF is not a magic wand,” said Cabraal. “At this point, other alternatives are better than going to the IMF.”

Celebrating 65 years of Sri Lanka-China bilateral relationship last Sunday, President Gotabhaya Rajapaksa sought to reschedule the country’s mammoth Chinese debt burden with Chinese Foreign Minister Wang Yi. China is Sri Lanka’s biggest lender, accounting for at least $4 billion Sri Lanka’s $35 billion foreign debt.

Sri Lanka has received flak from the US and India for its involvement with China, particularly for leasing the strategic Hambantota port to China for 99 years when it failed to repay a $1.4 billion loan for the port construction. The port, which is located along vital east-west international shipping routes, could give China a military stronghold in the Indian Ocean.

On Thursday, India promised a $400 million currency swap with the debt-ridden island nation. The Sri Lankan neighbour also deferred another $500 million that is due for settlement to the Asian Clearing Union (ACU), to which Sri Lanka and India belong along with seven other member nations.

However, China and India are not the only countries cash-strapped Sri Lanka has recently borrowed from as it struggles with crushing foreign debt.

In June, Bangladesh decided to lend Sri Lanka $200 million in a currency swap arrangement, making Bangladesh a lender in the global economy for the first time.

Last month, Colombo made an oil-tea pact with Iran to settle off a debt for past oil imports from Iran by paying off in tea, currently the island nation’s second biggest export after garments. Plantations Minister Ramesh Pathirana said that Sri Lanka will send $5 million worth of tea to Iran per month to clear a $251 million debt.

State Minister of Finance Shehan Samarasinghe told parliament in December that the country is “working with the central bank of Qatar to have swap facilities of over a billion US dollars with Sri Lanka’s central bank.”

Despite the foreign loans trickling in slowly, the crisis continues with food and fuel shortages, forcing the National Electricity Board to implement power cuts throughout the island. The blackouts imposed by power utilities which is unable to fund oil imports have sparked major concerns among local industries.

“Our cost of production has gone up by more than 50 per cent with the power cuts because now we have to run the generator. Add to it the rise in imported feed cost thanks to the dollar rising, farmers are suffering,” says Shevantha Ratnayake, a prawn farmer. “We can’t run the next culture, and I don’t know what to do.”

Sri Lanka’s dollar dilemma

Kalpitiya, a previously bustling kite surfing destination in western Sri Lanka, is now a ghost town. S. Tharindu, a licensed kite surfing instructor and champion kite surfer who previously earned 50 euros per lesson from foreigners, now ekes out his living by fishing.

“We have had no income since the pandemic, it’s been tough for all of us,” he says. “Many families now live on just two meagre meals a day.”

Sri Lanka’s tourism industry, which brings in foreign exchange and makes up over 10 per cent of the country’s Gross Domestic Product, has been hit hard by the pandemic. As a result, the island nation’s foreign exchange reserves have depleted drastically.

Since Gotabhaya Rajapaksa took office in November 2019 as president, and the country recording its first Covid-19 case a month later, forex reserves dropped from $7.5 billion to just $1.5 billion at the end of November — enough to pay for only about a month’s worth of imports.

As the central bank chief Weligamage Don Lakshman stepped down in September with the deepening of the reserve crisis, the country announced the closure of three overseas diplomatic missions in December in a bid to save foreign currency reserves.

“The Sri Lankan High Commission in Nigeria and consulates in Germany and Cyprus will be closed from January in the restructuring,” the Ministry of Foreign Affairs said in a statement. “The restructuring is undertaken with a view to conserving the country’s much needed foreign reserves and minimising expenditure related to maintenance of Sri Lanka’s missions overseas.”

The government also ordered all commercial banks to hand over a quarter of their dollar earnings to the government, which means fewer dollars for private traders to borrow from banks to import essential goods. The Central Bank went as far as to request loose change from people returning from overseas trips.

Sri Lanka is heavily dependent on imports, even to meet its basic food supplies including rice, sugar and milk powder. With foreign exchange drying up and the rupee depreciating by more than 11.1 per cent, the price of necessities has catapulted. Sri Lanka’s inflation rocketed further after a record money printing by the government to maintain low interest rates in November.

In April last year, President Rajapaksa announced his plan to make Sri Lanka the first nation in the world to return to strictly organic farming and make it a green economy. He promptly banned the importation and use of chemical fertilisers, pesticides, weedicides and fungicides.

A fast-depleting foreign reserves caused by a pandemic recession, led to severe shortages of food, fuel, medicine and other essentials. The banning of imported fertiliser led to further shortage of food. On August 31, the government declared a state of emergency and imposed rationing.

But the rationing led to black market and the military was deployed to seize goods from warehouses and force farmers to sell their rice to a state agency. As prices of vegetables skyrocketed to more than 400 per cent, over three-quarters of the 22 million Sri Lankans who earn less than $10 a day took the brunt of it.

But as the shortages worsened, in October, the government decided to end price controls. Despite the availability of food, families like the Aroos continue to live in poverty.

“Schools have started last week, but I’m not planning to send the children,” says Fathima. “I can’t even afford to feed them. How am I going to pay for uniforms and their writing books?”