CB asks what more could incentivise remittances than current Fx and interest rates

Responding to the recent media query as to whether the Central Bank intends to upend its policy towards worker remittances, which haven’t budged much after all the efforts, Governor Dr. Nandalal Weerasinghe asked what more than the current exchange rate and the exponentially high interest rate could incentivise such inflows.

The former Central Bank officials came under severe criticism for fixing the rupee against the dollar for longer at Rs.199/203 which was cited as the sole reason for losing out remittances to grey market channels such as Undiyal and Hawala which gave them up to Rs.260 for a dollar about a year ago.

The migrants were of the belief that they were being robbed by the policy makers for not paying the true value for their hard earned income.     

   
But, when the rupee was floated on March 7 causing its value to lose by over 80 percent to Rs.365 against the dollar, the remittances haven’t still recovered from their depths, as seen from the most recent data available for June.

“When you have this kind of exchange rate where you get Rs.365 for a dollar today compared to Rs. 200 earlier from the formal banking channels and when you convert the remittances you can earn over 20 percent interest rate on your rupee deposits and by between 7 to 8 percent interest if you keep them in dollars, what else ?,” asked Dr. Weerasinghe. 

Some migrants said they were waiting for President Rajapaksa to step down to resume their remittances via formal channels as they were of the belief that the ruling family was siphoning off what they had been sending to Sri Lanka.

Now that President Gotabaya Rajapaksa has stepped down effective from July 14, Sri Lanka is expected to see a spike in remittances as some migrants took to social media to announce their solidarity with countrymen and vowed to send money using formal channels. 

Meanwhile, Central Bank officials are also studying a proposal made by the Ministry of Foreign Employment to provide migrant workers with additional incentives to woo them towards formal banking channels when repatriating their money. 

Dr. Weerassinghe has already voiced his opposition to providing any tax related incentives such as duty-free car permits to migrant workers as it goes against equity principles.