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Worker remittances drop due to three key reasons; CBSL optimistic
The fall in migrant worker remittance levels has been attributed to increased use of informal money transfer channels, a drop in departures and an increase in the number of returnees, but the Central Bank is optimistic about a turnaround.
Earlier this week, the Central Bank’s release of the External Sector Performance for September 2021 stated that remittances for September 2021 were almost half the value of the remittances in September 2020.
However, the January to September period analysis, also conducted by the Central Bank, showed that the difference between 2020 and 2021 was only 9.3%.
“The difference might have arisen from the practices followed by the employers themselves,” a 45-year-old management-level Sri Lankan working in Bangladesh noted. In most cases, salaries are transferred to Sri Lanka by the companies themselves but when the companies give the migrant workers their salaries to their hand, not all of the money gets sent to Sri Lanka. In some countries, migrant workers are allowed to transfer only about 60 percent of their salaries.
He said another reason for the fall in the remittance level was the official dollar rate. While the CBSL has set the rate at Rs200 for a US dollar, the black market rate is Rs235. “Most of us prefer hand-carrying because this is more profitable for us,” he said.
Countries like Bangladesh, for instance, allow people to carry up to US$ 10,000 when they leave the country. “When you multiply 10,000 by Rs35, the difference in what we get for our earnings is huge – so more people will obviously go for the unofficial exchanges,” he said.
The Central Bank offers an incentive of Rs2 to migrant workers for every dollar they changed but this too falls below the rates offered by the unofficial exchanges.
Commenting on the use of unofficial transfer methods, Central Bank Governor Ajith Nivard Cabral noted that the Central Bank was gathering information on informal channels in order to dissuade migrant workers from using them. Speaking to the media this week, he said action would be taken against the operators of these channels once the CBSL investigations were concluded.
He said that a pension scheme was being planned to encourage migrant workers to use official channels to transfer foreign exchange remittances.
Central Bank Deputy Governor N W G R D Nanayakkara agreed that the decrease in remittances reflected a possible increase in the use of informal channels amidst pressures in the domestic foreign exchange market. He also acknowledged the gap between the exchange rate in the formal and grey markets and the convenience provided by operators of such services.
This gap, however, is narrowing, according to Mr Nanayakkara who noted that despite undue speculation since the announcement of the CBSL’s Six-Month Road Map, the Bank’s intervention in the foreign exchange market had been significant. The Bank last month introduced the road map, outlining key measures and tools to ensure macroeconomic and financial system stability in the country.
To introduce an incentive package for migrant workers who send their earnings to Sri Lanka through formal channels, the CBSL is working in collaboration with the Ministry of Labour, the State Ministry of Foreign Employment Promotion and Market Diversification, the Sri Lanka Bureau of Foreign Employment, the banking sector and other stakeholders.
In its migrant worker training sessions, the Sri Lanka Bureau of Foreign Employment explains the importance of using formal channels to transfer and exchange foreign curency. According to spokesman Mangala Radeniya, officials from banks also attend these sessions to allow workers to engage with banks and build trust.
While the growth in worker remittances remained relatively high during the five months ending May 2021 when compared with 2020, it has been at moderate level since June 2021, compared to last year.
Mr Nanayakkara said the return of more migrant workers to Sri Lanka following the relaxation of covid travel restrictions in source countries, the expiration of worker contracts and a fall in the number of people leaving for foreign jobs were other likely causes for the drop in remittance transfers.
The CBSL expects the pressure on the Sri Lankan rupee to further reduce with the requirement for mandatory export conversions, and when foreign currency inflows materialise in the upcoming months.
According to F M Arshad, the secretary of the Association Licensed Foreign Employment Agencies (ALFEA), prior to the pandemic, about 250,000 Sri Lankans found foreign jobs every year but the number dropped to 50,000 in 2020. Indicating a positive trend, it has increased up to 85000 so far in 2021.
Recruitment, however, has gone up by 55% over the last three months. Sri Lanka has currently set a goal of 100,000 migrant worker departures by the end of 2021 and a target of 300,000 departures for 2022. “We have submitted a strategic plan to the authorities with our recommendations to meet the industry targets set for this year and the next,” he added.
“The problem is the number of people who are coming back to the country is more than the number of people leaving for foreign jobs,” he said.
He estimates that last year’s travel restrictions would have resulted in a revenue loss of about Rs8 billion, the impact of which was being felt now.
With the improvement of the pandemic situation, the authorities claim that worker migration is showing signs of improvement as monthly worker registrations at the SLBFE are rising. They say a worldwide increase in the demand for migrant workers, especially in the Middle Eastern region, is expected owing to the increases in crude oil prices.
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