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Incentives such as pensions offered if migrant workers remit their money through CB
Despite wide speculation that the Central Bank’s new repatriation of export proceeds would also apply to migrant remittance deposits, banking sources said this would not be so.
The move came amid Central Bank attempts to revert migrant worker remittances to formal money transfer channels. The Central Bank will be paying an additional Rs. 8 for a US dollar to migrant workers who remit their earnings through formal channels until the end of the year. This comes in addition to the Rs. 2 for a US dollar already being given to them under the Incentive Scheme on Inward Worker’s Remittances. This was offered to encourage migrant workers to remit their funds through formal channels.
Central Bank Governor Ajith Nivard Cabraal made this announcement last week amid a crackdown on unlawful money transmission systems like the Arabic hawala system–a popular and informal value transfer system based not on the movement of cash, or on telegraph or computer network wire transfers between banks, but instead on the performance and honour of a huge network of money brokers known as hawaladars.
While the total incentive value awarded for a US dollar now stands at Rs. 10 for migrant workers–about Rs. 213 for a US dollar–the black market rate stands between Rs. 235 and Rs. 240 for a US dollar, a significant difference that many migrant workers say will still make the unofficial systems more profitable.
While many experts questioned the practicality of the measure, the Central Bank is of the view that the incentive would further induce migrant workers to remit their foreign exchange earnings through formal banking channels during the festive season. Central Bank Deputy Governor N. W. G. R. D. Nanayakkara also told the Sunday Times that migrant workers who remited foreign exchange to Sri Lanka through formal channels would also be able to obtain other benefits such as eligibility to the proposed pension scheme for migrant workers and incentives that were to be introduced in collaboration with key stakeholders in the foreign employment sector. He also said that as informal channels were used by some expatriates, formal channels continue to receive a significant amount of foreign remittances.
Ceylon Bank Employees Union General Secretary Ranjan Senanayake said Non-resident Foreign Currency accounts would only be affected if the proceeds coming in were from export activities. “This means those remitting their income from work abroad and other sources will not be impacted,” he said.
Meanwhile the Central Bank is implementing measures to curtail the operation of informal fund transfer channels.
“This will in turn further encourage migrant workers to use formal channels to remit their hard-earned foreign exchange to the country not only for the benefit of their dependents but also to support external sector stability of the economy,” Mr. Nanayakkara said.
He said the CB conducted both off-site and on-site surveillance on the financial sector of the country particularly through the Bank Supervision Department and the Financial Intelligence Unit, which entailed inter-alia monitoring of unlawful money transmission methods. Action was also being taken to freeze the bank accounts that facilitate fund transfers for remittances routed through unlawful channels. Further, the CB was implementing an International Transactions Reporting System (ITRS)–a comprehensive cross border and foreign currency transactions monitoring system that would enhance information related to external sector transactions.
He also said while the decision to increase the remittance rate by Rs. 10 was unconventional, the recent pandemic situation had induced many financial authorities across the globe to take unconventional steps to manage their economies during these turbulent times. In this context, the CB had also launch numerous measures to support individuals and businesses affected by the pandemic and to also reduce the adverse impact on the economy.
“So these incentives were introduced with the objective of encouraging foreign remittances through formal banking channels. This would not only benefit the migrant workers and their family members but also contribute towards the overall stability of the economy.”
“It is better than nothing,” said F. M. Arshad, Secretary of the Association of Licensed Foreign Employment Agencies (ALFEA). He said the Association had made many recommendations to the CB during the course of multiple meetings they had and that they had asked for concessions to encourage migrant workers to use formal channels.
“It is still a difference of about Rs.20,000 when we exchange US$ 1000,” said a domestic worker in West Asia. With rising costs of living she was finding it increasingly difficult to provide for her three children in Sri Lanka as income did not keep pace with expenses.
The CB has also warned it would be tracking down accounts using unofficial money transfer methods even though most experts questioned the practicality of this warning.
“The CB could use big transfer patterns and sequences but it will still be quite a stretch,” said Advocata’s Chief Operating Officer Dhananath Fernando. He also said the incentive scheme was unlikely to bring about much of a change since the disparity between the black market price paid for a dollar was still quite stark. He said that a dual exchange rate policy–a policy that treated different dollar inflows differently–was in general a bad idea as it would encourage more fraud especially by those indulging in exporting and other non-remittance related work.
“It goes to show how desperate the government is for dollars but the rate manipulation will only make things worse,” he said. Sri Lanka’s debt to GDP ratio is worsening with the depreciation of the Rupee and Mr. Fernando said he believed a more sustainable solution was long overdue.
“The limitations in the dollar will continue to worsen unless we allow the market forces to function,” he he said.
He said the regularly shifting policy also reflected badly on investors. Ad hoc decision making would make local enterprise too risky an investment. “At least we should not be confusing our migrant workers about what will happen to their hard-earned money,” he said.
He said tying up corners was hardly the right way to deal with a much larger economic crisis.
| Going through banks: Software engineer says he lost Rs. 15,000 | |
| People are complaining that compared to the market rates banks are giving them significantly less for the dollars they deposit. A software engineer said he recently received only Rs. 193 for a dollar for a deposit made to his account this week. “The indicative rate was at Rs. 202 yesterday and the buying rate generally does not go below Rs. 198. So I do not know why I was given five rupees less,” the 30-year-old software engineer said. According to him he gets a weekly payment of US$ 3500 and the loss from this week’s deposit was Rs. 15,000. He said people bringing in foreign currency were under pressure to convert their money in the black market as banks would automatically do so once 30 days elapsed since the date of deposit. “We work on long term contracts so we cannot change these matters to fit the changes in our economy, and I do not understand why we are being penalised for bringing dollars here,” he lamented. He said, this combined with the lack of consistency between bank rates was disorienting. “This should not be the case,” agreed Ceylon Bank Employees Union General Secretary Ranjan Senanayake. He said the lowest buying rate a dollar could go to was Rs. 198 and banks were obliged to maintain the rates between Rs.198 and Rs. 202. He said the situation was confusing as bank policy should not have differed so much as to cause a Rs. five reduction for dollar. “While acknowledging that banks are entitled to charge a transaction fee on the costs incurred and services given in facilitating foreign exchange remittances to the country such charges should definitely be within a reasonable limit,” said CB Deputy Governor N. W. G. R. D. Nanayakkara. The CB will address any instances where customers are exploited, if details of such transactions are reported. Accordingly, the affected customers could make their complaints to the Director of the Financial Consumer Relations Department (Email: fcrd@cbsl.lk). |
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