The continuous decline in remittance income from Sri Lankans working abroad could make the job of the Central Bank’s efforts to build gross official reserves much harder— possibly drawing the wrath of the International Monetary Fund (IMF)—as non-borrowed reserves is a key target to keep the 3-year programme intact.
The latest data showed that workers’ remittances fell for the fourth consecutive month. The remittance income for the first six months of the year also recorded a negative growth, which is sizable enough to panic the policy makers.
In June, workers’ remittances declined by 13.5 percent year-on-year (YoY) to US $ 558 million while for the first six months they fell by 7.2 percent YoY to
Rs.3, 355 million.
Slowing remittances appears to be the new norm that the country will have to live with as the Gulf countries grapple with lower oil prices political volatilities stemming from the row between Qatar and its neighbours led by Saudi Arabia.
This trend could also be a result of slowdown in people going abroad as domestic workers after the government tightened the grip on unskilled migration to address a plethora of negative social outcomes emanating from it.
Now women seeking work abroad are going through much stringent vetting process before being qualified to leave their families.
Meanwhile, rapid demographic changes in Sri Lanka may also be luring these workers, largely women, into local jobs, although opportunities abroad exist.
In any case, the situation might not lead to an immediate crisis, as the tourism and other inflows to the government securities market and to the Colombo Stock Exchange are filling the gap. But the persistent nature of the slowdown in remittance income could force the policy makers to find alternatives.
The recent foreign borrowings by the Central Bank by way of a sovereign bond issue and back to back syndicated loans appear to be the proactive measures by the bank’s officials to fill the hole left by the slowing remittances.
So far during this year the Central Bank raised about US $ 2.0 billion through a combination of sovereign bond issuances and two syndicated loans, the most recent one being the US $ 550 million raised a few days ago.
The protracted Gulf region woes could threaten the viability of this crucial source of foreign income unless the continued improvement in the trade gap and the marked improvement in foreign inflows from other sources such as tourism, IT/BPO and foreign direct investment occur.
During the 1H17, Sri Lanka recorded a surplus balance of payment of US $ 1, 563 million compared to a deficit of US $ 1,186 million during the corresponding period last year.
Sri Lanka’s gross official reserves by end June stood at US $ 7.0 billion, equivalent to 4.1 months of imports.