SDAs with higher rate identified as catalyst for increased remittances

• SDAs offer additional 2% interest rate on deposits denominated in designated foreign currencies
• By July 2, accounts had a balance of US $ 458mn
• Seeing potential, CB on July 8 extended additional 2% for further 24 months
• SDAs also playing key role in drawing more foreign earnings from Lankan expats working in developed countries

The Special Deposit Accounts (SDAs) introduced last year at the onset of the pandemic, offering a higher rate of interest for foreign currency deposits, are also playing a role in drawing more foreign earnings from the Sri Lankan expatriates working particularly in the developed countries, ICRA Lanka has observed.

The Central Bank on April 8, 2020 introduced SDAs, offering a 2.0 percent additional interest rate on deposits denominated in designated foreign currencies to lure such moneys to assist the rebuilding of the foreign reserves, which came under pressure due to the pandemic.  

Considering the potential of the accounts demonstrated in attracting foreign currency, the Central Bank on July 8, 2021 extended the additional 2.0 percent for a further 24 months. By July 2, the accounts had a balance of US $ 458 million. 

ICRA Lanka has observed that the expatriates, particularly in the developed countries, have found this account attractive to channel part of their foreign earnings, assisting more than a year-long increase in the remittance incomes. 

“Remittances managed to perform consistently well above the last year levels. This is in spite of a significant number of returnees particularly from the Middle Eastern countries,” ICRA Lanka said. 

“The increase is attributable to increased remittances from Sri Lankans living in developed countries to SDAs with a higher interest rate,” the rating agency added. 

ICRA Lanka also holds a broadly more positive outlook on the remittance incomes, given the more diversified nature of foreign currency remittances from the Sri Lankans working across many continents, which minimises the risk of overdependence on one country or region such as the Gulf, whose economies are more susceptible to the direction of the oil prices. 

Worker remittances remain the only bright spot in Sri Lanka’s external sector battered harshly by the pandemic-induced restrictions.

The repatriation of earnings by the Sri Lankan community working abroad have consistently performed well so far every month above their year earlier levels during the 13 months through May this year, before bucking the trend in June. 

However, the US $ 3.32 billion received during the first six months of this year was still 11.6 percent higher than the same period in 2020. 

Contrary to initial expectations, worker remittances to Sri Lanka ascended from as early as May last year, as people working abroad sent back more of their earnings to financially assist their dependents, whose incomes got adversely affected due to the pandemic-induced restrictions and the near full use of formal banking channels to transfer money over informal money methods, whose operations were affected, due to the pandemic. 

Sri Lanka expects between US $ 7.5 billion to US $ 8.0 billion in remittance incomes in 2021, up from US $ 7.1 billion in 2020, a four-year high.