Worker remittance bleeding continues despite incentives

• January remittance income plunges over 60% to US$ 259mn
• Migrant workers show little inclination towards the extra Rs.10 offered by authorities 
• Parallel exchange rates offered by unofficial money changers top Rs.260 per dollar
• Authorities need to either float the currency or increase interest rates or do both to overcome the current forex crisis

The worker remittance income plummeted in January, continuing the months-long bleeding in the largest foreign income earner to the country, reflecting that the incentives offered by the authorities haven’t been effective in wooing migrants to use the official banking channels. 

According to latest Bank data, the remittance income has plunged by 61.6 percent to US$ 259.2 million in January 2022 over the same month in 2021, exacerbating the woes faced by the country’s already reeling external sector. 
January remittances were also down from US$ 325.2 million in December 31, 2021, although relatively higher remittance incomes are reported for December compared to a typical month.
December 2021 receipts were also down by 60 percent from a year ago.

Worker remittance is the single largest foreign exchange income earner to the country, and such inflows of about US$ 7.0 billion per annum account for 8 percent of the country’s Gross Domestic Product. 

Remittance income, which reached US$ 7.1 billion in 2020, hitting a four-year high, fell sharply or by 22.7 percent in 2021 to US$ 5,491.5 million. This was a result of people working abroad choosing informal money changers to send back their money home due to the higher exchange rates offered by these operators. They may have also been spooked by the recent measures introduced to convert services inflows into rupees, which prompted them only to repatriate the bear minimum.

The Central Bank from October end issued a fresh decree mandating both merchandise and services exports earnings to be converted into rupees after meeting all expenses and other commitments in foreign currency up to a month, barring remittances. 

Despite the exclusion, looking at the significant decline in remittances it is the rule that has made expatriate workers apprehensive.  The large difference between the official exchange rate offered by banks under the Central Bank guidelines and the unofficial exchange rate offered by the informal systems such as Undiyal and Hawala have drawn many migrant workers to choose the latter to repatriate their money.  While the Central Bank launched a crackdown on informal money changers, the parallel exchange rates in the north of Rs.260 to a dollar compared to Rs.199-203 offered by bank, have continued to draw remittances via them. 

Meanwhile, the January numbers also reflected that migrants had shown little inclination for the extra Rs.10.00 offered by the Central Bank when channeling their earnings via banks.  Meanwhile, LankaClear Private Limited last week launched LankaRemit, a mobile application which enables the Sri Lankans working abroad to repatriate their earnings with ease. However, migrants remain skeptical if the move would bring desired results.  “Good. Now give the real value for dollars so people would transfer. People won’t just transfer because there is an app. They should get the real value for hard-earned money,” said one Twitter user in response to the app launch.  Sri Lanka either has to float the currency or raise interest rate or do both to overcome the current foreign currency and most other macro-economic troubles.