Surge in official remittances boosts SL’s economic outlook

June 09, Colombo (LNW): Official remittances to Sri Lanka experienced a notable increase of 13.5 pe rcent, reaching $544.4 million in May 2024 compared to the corresponding period last year.

This surge has been attributed to a greater number of expatriates utilising official banking channels.

Official data indicates that remittances during the first five months of the year totalled $2,624.4 million, marking an 11.8 percent rise from the same period in the previous year.

The consistent growth in remittances follows the abandonment of a parallel exchange rate system by the central bank.

This shift has encouraged many expatriates to transition away from informal money transfer methods such as Undiyal and Hawala, towards formal banking channels.

In 2023, Sri Lanka experienced a significant 57 per cent increase in remittances routed through formal banking channels, rising to $5.97 billion from $3.8 billion the previous year.

This uptick can be attributed to the elimination of parallel exchange rates.

The island nation’s external sector has shown signs of recovery since the central bank ceased money printing to sterilise interventions funded by the Indian Asian Clearing Union.

This decision led to balance of payments surpluses.

In 2021, worker remittances via official channels declined due to challenges in payment processing by the banking system at the official exchange rate.

This was a consequence of money printing aimed at maintaining low policy rates, resulting in the emergence of parallel exchange rates settled outside the formal banking system.

Worker remittances stand as one of the primary sources of foreign exchange revenue for Sri Lanka, aiding its ongoing recovery from an unprecedented economic downturn.

Starting from April 2022, there has been an unprecedented increase in interest rates, resulting in a slowdown in credit growth and reducing the need for money printing to manage rates.

*With inputs from Economy Next