The Central Bank last week expressed concern over the prolonged diplomatic spat between Qatar and its Arab neighbours as the spillover effects of the development could hurt Sri Lanka’s biggest foreign exchange earner, worker remittances.
“The ongoing Qatar-Gulf crisis could pose a risk to workers’ remittances as Qatar is a key migrant employment destination for Sri Lankans,” said Central Bank Economic Research Unit Head Y. Indraratne.
Saudi Arabia and the UAE spearheaded a campaign earlier this month with Egypt and Bahrain to sever ties with Qatar, accusing it of supporting Islamist militants and Iran. Despite being oil rich, this has put immense pressure on Qatar’s economy.
The cautious tone of Sri Lanka’s Central Bank comes at a time when the worker remittances have already started their downward trend.
During the first four months of this year, the worker remittances declined by 6.3 percent year-on-year (YoY) to US $ 2,221.67 million while during April alone, the decline was as acute as 15.6 percent YoY to US $ 487.89 million.
Qatar accounts for a quarter of Sri Lankan migrant workers and according to the data compiled by the Economic Intelligence Unit of the Ceylon Chamber of Commerce, 65,139 departures, out of the total migrant worker departures of 263,389, had been to Qatar in 2015.
This could probably be the highest departures to Qatar in a single year because there are about 150,000 Sri Lankan migrants workers in Qatar out of a total of 1.6 to 1.7 million Sri Lankan migrant worker population.
Although a country breakdown of remittance flows is still not available, the Middle-East accounted for 54 percent of the US $ 7.2 billion of total remittances received by Sri Lanka, last year.
Central Bank Governor Dr. Indrajit Coomaraswamy opined that although there is still no significant impact to Sri Lanka from the diplomatic row between the members of the Gulf Corporation Council, an intensified and prolonged crisis would likely to have negative implication on Sri Lanka.
However, Dr. Coomaraswamy attributed the decline in the remittances during the first four months to the decline of housemaids, which is policy-driven, as the government made it mandatory for the women seeking foreign employment under the housemaid category to fulfil certain requirements to qualify for migration.
Apart from that the austerity measures adopted by the Gulf countries by way cutting of subsidies, laying off of foreign workers, etc. due to lower oil prices, would have also contributed to this downward trend.
In 2016, remittances from migrant workers to South Asia fell 6.4 percent YoY after years of steady increase. Remittance to India fell by 8.9 percent—the second decline in a row—to US $ 62.7 billion from US $ 72 billion two years earlier.
Remittance income to Bangladesh, which accounts for 6 percent of its gross domestic product (GDP), declined by 11 percent YoY while the remittance income to Nepal, which accounts for 30 percent of its GDP, fell by 6.7 percent YoY.
Some analysts are of the view that remittance to South Asia have peaked as the oil industry, which fuelled the Gulf boom, is now in a long-term decline.