Crisis of remittances and jobs in West Asia
View(s):Will the oil crisis in some Gulf states and West Asia (Middle East) see a decline in not only remittances from thousands of Sri Lankan migrant workers but also employment opportunities? These are some of the concerns being raised in Colombo as Arab states face shrinking revenues from oil which has hit all-time lows, sinking to US$27 per barrel 10 days ago but resurfacing at US$30 this week, while political unrest in some Arab states is seen as spilling over to its neighbours which then could quickly become another problem for labour-sending countries like Sri Lanka.
Tourism in Arab states is likely to see a drop in European arrivals (even if marginal there is an impact) as visitors from there could find it difficult to travel to Islamic countries over Islamic State militancy issues. These are destinations like Turkey, Tunisia, Morocco, Algeria and Egypt which don’t have large concentrations of Sri Lankan workers but could see a fallout in neighbouring states. These countries are popular summer destinations and draw millions of German and French travellers, who are on the lookout for new destinations to visit and relax.
Governments, present and past, are prone to ignore such warnings with the usual, offhandish comment “no worries …we are prepared for any eventuality”. However this time, ignorance won’t help as economic problems are mounting at home and warnings from local economists and international agencies of a troubled international scenario that has a direct and widespread impact on Sri Lanka cannot, and must not be taken lightly. Budgets have gone off target and tax revenue estimates have gone haywire, as widely known now.
Ad-hoc measures to rope in foreign deposits and cash through controversial ‘no questions’ asked’ strategies won’t help either except trigger more complex problems and questions on black money and money laundering, the very issue that the government is accusing former President Mahinda Rajapaksa and his family of committing. Earlier this week, well-known economist Saman Kelegama, Executive Director of the Institute of Policy Studies, warned that lower oil prices could badly hurt remittances.
“Remittances account for 9 per cent of GDP and are the highest foreign exchange earner in Sri Lanka. A decline in remittances is going to hit the economy strongly,” he was quoted as saying at a recent public forum, adding in the same report: “If prosperity in the Middle East (West Asia) declines, households which recruited two people in the past, now only hire one.” Another issue he raised was that the strengthening of the US dollar could weaken West Asian currencies and further hurt remittances.
According to the latest Central Bank data, workers’ remittances declined by 0.5 per cent in 2015 largely reflecting a decline of receipts from West Asia. In another warning, Kelegama said that West Asian countries could delink their currencies from the dollar and allowing them to depreciate. “The moment they do so remittances flows to countries like Sri Lanka will further decline,” he was quoted as saying. Dependency from Sri Lankans working particularly in West Asia, the bulk of the 1.2-to-2 million Sri Lankans abroad, is extremely high.
Not only remittances, now the highest foreign exchange earner, but also employment averaging a deployment of over 200,000 new jobs annually keeps the country’s economy chugging along and act as a buffer against external financial pressures. From all available accounts, the crisis pertaining to foreign workers from Asia and their remittances is growing. While a recent World Bank report said remittances from Gulf countries to the South Asia region increased substantially, it also warned (at the same time) that if lower oil prices persist and economic activity in GCC countries decline, then outward remittances from these countries would slide.
According to reports from the Philippines, one of the biggest exporters of un- and semi-skilled workers to West Asia, remittances from Filipinos based in West Asia, slowed down by 6.77 per cent to US$3.56 billion from January to August 2015 compared to US$3.36 billion in the same period The possibility of the introduction of a special tax on remittances which is said to have been proposed by Gulf countries – to boost local revenues – could further worsen the impact on the migration trends and remittances. All these developments will no doubt affect not only Sri Lanka’s balance of payments but have other economic repercussions like the dependency on West Asian jobs to keep unemployment numbers low.
Foreign exchange requirements in the next 12 months in terms of loan and interest payments, according to Central Bank figures, is as high as US$5 billion while foreign reserves currently stand at US$7.29 billion. These are dangerously low levels unless more money comes in.
It was against this background that Prime Minister Ranil Wickremesinghe and his team proceeded to Davos for the January 20-23 World Economic Forum, an annual parley where the world’s rich and famous discuss the global economy, its future and what it means to business. During the trip, the Sri Lankan Premier met top officials from multinational banks and heads of business conglomerates, and is said to have won assurances of investment and multilateral funding from the Asian Development Bank and budgetary support from the International Monetary Fund.
Meanwhile, the lifting of US-led economic sanctions on Iran should ideally help boost Sri Lanka’s tea exports. Iran has been a big buyer at the Colombo tea auction with goods shipped through different ports to reach Tehran, due to the embargo. The ease of trade could cut costs on exports to Iran but whether it would boost trade remains to be seen and, at the same time, raises the question as to whether lower oil revenues and less buying power, reduce purchases. Russia, Sri Lanka’s other large tea buyer, has its own problems where the Rouble (currency) has crashed. Sri Lanka’s problems are only starting.