Tough times ahead with dim prospects for foreign inflows
Remittances from Sri Lankans working overseas to their families back home fell during the first seven months of this year for the second time in two years, raising concerns that many poverty stricken families dependent on this income could be hit in the island, economic analysts said.
An economic slowdown and falling oil prices in the Arabian Gulf region – the avenue for the country’s main foreign exchange earnings – are seen as major contributors to the drop in remittances.
The cumulative workers’ remittances in the first seven months of this year fell 5.7 per cent year-on-year (YoY) to US$3.94 billion despite a 3.4 per cent YoY increase in July to $592.1 million, acting Director of the Central Bank’s Economic Research Department, Chandranath Amarasekera said.
This was the second time where Sri Lanka has experienced a drop in workers’ remittances. The first decline was reported two years ago, when workers’ remittances in 2015 fell to $6.9 billion against $7 billion in 2014, he added.
Remittances in Sri Lanka have averaged $485.37 million per month from 2009 until 2017.
Sri Lanka is facing a tough year with dim prospects for exports, foreign direct investments and foreign inflows amid tightening liquidity in international capital markets, a senior Treasury official disclosed.
“Almost 50 per cent of our remittances come from the Middle East (West Asia). ISIS attacks are also causing instability there,” he said adding that a possible reversal in worker remittances in 2017 will be the last thing the government would expect.
However Deputy Minister of Policy Planning and Economic Development Dr. Harsha de Silva, who is also a well-known economist, told the Business Times that his ministry had been following this trend for some time and had taken appropriate steps more than a year ago. The numbers have not made any unexpected impact on the forex reserves, he said.
“There is a risk in this area (remittances) for us due to the fall in crude prices as well as the political tension in the region,” said Dr. de Silva.
“Worker remittances have been the top foreign income earner for the nation coming ahead of garments and tea export earnings combined,” he pointed out.
The deputy minister said that on the positive side it is beneficial to have the skilled workers remain in the country at a time when their skills are in high demand.
Given the low unemployment figures and the fact that 430,000 new jobs have been added to the labour force since January 2015, they can look forward towards making similar salaries as they would have in West Asia in a number of fields, he added.
“A shift of labour from temporary migration to a growing exports sector could have a positive development because it will also address some of the serious social problems associated with temporary migration,” Central Bank Governor Dr. Indrjit Coomaraswamy told reporters in Colombo, recently.
He added that he doesn’t want a sharp decline in workers’ remittances as it could prove disruptive. Workers’ remittances have been financing 70 to 80 per cent of Sri Lanka trade deficit, he revealed.
The slowing in remittances growth, which began in 2012, was exacerbated this year by low oil prices, which are taking a toll on many oil-exporting remittance-source countries including Sri Lanka.