Migrant workers take ‘wait-and-see’ approach to repatriate moneys amid currency uncertainty

• Worker remittances down for second consecutive month in July by 35.4%to US $ 453mn
• Analysts believe migrant workers may be withholding part of earnings expecting the rupee to shed value further
• Say fixing the rupee at Rs.200/Rs.203 levels to US dollar since last week could also further delay repatriations
• Cumulative remittance income until July 2021 just up by 2.6% to US $ 3.78bn

Adding to the woes facing the country’s external sector liquidity caused by the pandemic-induced economic challenges, Sri Lanka’s migrant workers appear to be taking a ‘wait-and-see’ approach’ before sending their moneys back into their home country to take advantage of the weakening rupee against the United States dollar. 

Sri Lanka, during the last couple of months saw some declaration in the growth in its worker remittances before contracting since June, which the Central Bank referred to as unusual, while attributing it to grey market conversions happening outside the formal banking sector channels. 

Besides being routed through part of their moneys via grey market channels, an economic analyst said some migrant workers might also be withholding part of their moneys until the rupee shed its value further, which enables the receivers to exchange such moneys for higher rupees than now. 

“I think the reduction of remittances is largely due to anticipation of currency depreciation,” said Senaka Kakiriwaragodage, the Chief Executive Officer at NDB Capital Holdings Limited speaking at an online forum organised by Postgraduate Institute of Management, dedicated to discuss the current challenges facing the country’s foreign exchange sector.

Fixing the rupee at Rs.200/Rs.203 levels to US dollar through an administrative remit since last week could also further delay repatriations, but the remittances have been getting Rs.2.00 extra for each dollar being converted from this year as part of a budget proposal last year. 

Growing continuously for 13 months on a year-on-year basis, remittance incomes started showing some cracks starting June when such incomes fell by 16.4 percent to US$ 478.4 million before slumping 35.4 percent to US$ 453 million in July. 

While there could be some ‘levelling-off’ due to the high base effects last year which led to sustained increases in the remittances every month since the global economies started reopening from the first wave of the virus last year, reasons beyond the base effects were also suspected of playing a role for the disappointing numbers since of late. 

“I think it largely is the case of whether you convert it today or you convert it later or rather you bring the money later. And I don’t think, with regard to remittances, the interest rates played that significant role in my opinion”, Kakiriwaragodage added in response to a question if the recent capping of interest rate on dollar deposits could have had anything to do with the recent slowdown in the remittance flows.  

The recent deceleration and the contraction in the flow of remittances, pared the first seven months’ growth in remittances to just 2.6 percent to US$ 3.78 billion. The authorities hope to receive US$ 7.5 billion worth of income from remittances in 2021, up from US$ 7.1 billion in 2020, a four-year high. 

Remittances still remain the only bright spot in Sri Lanka’s external sector when the pandemic had a lingering effect on all other inflows into the country. However, the fast vaccination drive and full facilitation from the government to insulate export industries from the effects of the pandemic resulted in merchandise exports marking a sustained recovery from the depths it hit in April.