Temporary lull in economic crisis
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Thankfully, remittances from migrant workers seem to be growing as per recent data.According to Central Bank statistics, remittances reached US$325.4 million in August 2022, and though lower than $446.6 million in August 2021 it was higher than $279.5 million reported in July. Earlier data showed remittances of $274.3 million in June and $304.1 million in May 2022.
The increase in remittances, which would help bolster the country’s sagging foreign exchange reserves, is largely because the pegged US dollar rate currently at little over Rs. 363 per 1 US dollar (as at Thursday September 15) has stabilised at these levels over the past few weeks. The ‘outside’ rate offered by foreign exchange dealers for dollars is also not as high as it was before, when the difference between the official banking rate and the unofficial rate sometimes exceeded Rs. 50 per dollar, and led to remittances coming through unofficial channels (which is still happening).
However, Sri Lanka’s foreign exchange issues still persist. For example, the amount of ‘usable’ foreign reserves is still at a low $300 million in July for the simple reason that while gross official reserves stood at $1.8 billion at end July 2022, this figure includes a swap facility from the People’s Bank of China, equivalent to around $1.5 billion, which is subject to conditionalities on usability. This is compared to a clean $7 billion in foreign exchange reserves during 2015-2019, the period of the former government.
As I dwelt on these figures, the phone rang. It was ‘human resource’ pundit H.R. Perera, popularly known as HR.
“Hi HR, how are you?” I said, pleasantly welcoming his call. “Fine… fine. I came across some information that would be useful for your column,” he said.
“What is it?” I asked. “Well I heard some experts talking about the disparity of salaries in the IT sector. Apparently it appears that some IT companies and start-ups are losing talent to companies that peg the salaries of staff to the US dollar or other foreign currencies,” he said.
“How does it work?” I asked again. “Well these companies pay local wages plus an add-on for the difference in the foreign currencies which is what these companies earn from overseas clients. So staff in these companies virtually get two salaries,” he replied.
“Ah… now I remember a spokesperson for the Sri Lanka Association for Software Services Companies (SLASSCOM), the local IT chamber, expressing concern over this disparity as it’s attracting staff from local companies that are not pegging the salaries to the dollar to those that follow this practice,” I said.
“I think it’s a source of concern to companies affected by these new developments,” he said, as we wound up the call after discussing other economic developments in the country.
Like it or not, the US dollar will continue to benefit or plague the lives of Sri Lankans. At the same time, I heard a commotion at the gate. The trio was in conversation with Aldoris who had arrived in his small food truck.
Aldoris was talking about his relatives working in West Asia being able to buy an electric motor vehicle under a new government scheme.
While earlier the focus of those, mostly domestic and unskilled labour, working abroad was earning to build or renovate a house, now the carrot dangling in front of them as a reward for boosting foreign exchange reserves appears to be owning a vehicle!
“Janathawata puluwanda vahanayak salli deela ganna, egollanta labena sochcham mudal walin (Can people afford to buy a vehicle with their meagre earnings),” asked Kussi Amma Sera.
“Meka diri ganweemak wenna athi, thava mudal apahu ewanna (This must be an incentive to send more money back home),” noted Serapina, while Mabel Rasthiyadu added: “Aanduwa meita wadiya karanna avashyayai ape pita rata weda karana kattiyata (The government needs to do more than this to support our workers in foreign countries).”
While details of the scheme are still sketchy, a recent announcement by the Ministry of Foreign Employment says that migrant workers who have remitted more than $3,000 through official channels from May 1, 2022 to April 30, 2023, will be granted a licence to import an electric motorcycle.
It also said those who have transferred more than US$20,000 from May 1, 2022 to December 31, 2022 will be permitted to import an electric car.
This would mean the scheme would be effective only after December 2022. It would benefit both domestic workers (and unskilled workers) whose earnings may range from $200 to $500 per month and others earning in a higher income bracket.
The ministry has also been offering other incentives to entice more remittances – which to some extent, as revealed earlier, are showing encouraging signs of increasing monthly returns – to add to the struggling foreign exchange reserves position.
In other connected developments, Sri Lanka’s foreign trade balance improved in July. While merchandise exports totalled $1,164 billion, merchandise imports totalled $1,287 billion with the deficit being $123 million, a creditable performance compared to a much bigger deficit of $606 million in July 2021.
The trade balance performance in June 2022 was even better – recording a surplus for the first time in two decades. According to Central Bank data, the balance in the merchandise trade account in June 2022 recorded a surplus of $21 million, compared to the deficit of $652 million recorded in June 2021.
These encouraging data in June/July 2022 are largely due to the performance of apparel exports. According to statistics, total apparel exports in July of $522.14 million experienced a 22.4 per cent increase in comparison to the July 2021 apparel exports of $425.75 million. The cumulative performance of the apparel industry from January to July 2022 also demonstrated a positive outlook. Total exports during the seven-month period from January to July 2022 increased by 20.44 per cent compared to the corresponding period of 2021.
These encouraging signs in the economy have also been firmed up by less pressure on the opening of letters of credit and more access to foreign cash for overseas travel. Sri Lankans have also begun to increase trips abroad for work or holiday, according to travel agents while remittances and apparel exports are expected to grow in the coming weeks.
There is less pressure at fuel stations (little or no queues), while gas supplies are also available without any supply shortage.
On the flip side, macro issues in the economy persist, one being the rising cost of goods which is making it near impossible to lead a normal life. Additionally, various irregularities in government contracts particularly in gas and coal tenders have marred any positive performance by the government. Furthermore the repayment of huge loans will continue to impact Sri Lanka while the economy is shrinking.
As Kussi Amma Sera brought in my second mug of tea saying, “Ape meda peradiga inna nedeyanta viduth yathuru-padiyak ganna puluwan (Our relatives in West Asia can buy an electric motorcycle)”, I laughed aloud and reflected on the temporary lull in the economic crisis.
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