For the first time in 27 months,
Sri Lanka's overseas worker remittances recorded a decline in November 2024,
dropping by 1.3% to $530.1 million compared to the same period in 2023. This
decline interrupts a consistent upward trend in remittances that began in
August 2022, raising concerns about the sector's resilience amidst global and
domestic challenges.
Sustained Growth Prior to the Decline
From August 2022 through October 2024, worker remittances experienced steady year-on-year growth, serving as a critical lifeline for Sri Lanka’s recovering economy. Despite the November drop, cumulative remittances for the first 11 months of 2024 totalled $5.96 billion, a 10.4% increase from the $5.4 billion recorded during the same period in 2023.
The remittance sector’s strong performance in 2023 saw inflows through formal channels surge by 57% to $5.97 billion, a sharp rise from $3.8 billion in 2022. This growth stemmed from reforms that curtailed informal money transfers, such as Undiyal and Hawala, by incentivizing the use of official banking systems.
A Cornerstone of Economic Stability
Worker remittances remain one of Sri Lanka’s top foreign exchange sources, especially as the country continues its recovery from the 2022 economic crisis. The revenue generated by expatriates is crucial to stabilizing the nation’s economy, which was severely strained following its declaration of bankruptcy.
Key policy changes have been instrumental in attracting remittances back to formal channels. The Central Bank's decision in April 2022 to abandon its sterilized intervention policy and parallel exchange rate regime significantly improved confidence in formal systems. Additionally, raising interest rates to historic levels reduced inflationary pressures, further stabilizing the exchange rate and encouraging the use of official banking channels.
Efforts to Boost Remittance Inflows
In response to its economic crisis, Sri Lanka has focused on increasing the number of migrant workers. Since 2022, the government has prioritized facilitating overseas employment opportunities for Sri Lankans in key markets, aiming to sustain and grow remittance inflows.
Challenges in the Remittance Sector
The November decline highlights vulnerabilities within the remittance sector. In 2021, remittances fell sharply when expatriates opted for informal money transfer networks due to better exchange rates. Such challenges were compounded by the Central Bank's earlier interventionist policies, which created distrust in formal banking channels and further eroded remittance inflows.
The sector also remains sensitive to external pressures, including economic conditions in host countries, exchange rate fluctuations, and changes in global labor demand.
Outlook for the Future
While the decline in November raises concerns, the overall upward trajectory of remittances in 2024 underscores their critical role in Sri Lanka’s economic recovery. Sustaining this revenue stream will depend on maintaining favorable exchange rates, bolstering trust in formal banking systems, and implementing policies that support migrant workers.
Despite fluctuations, worker remittances remain a cornerstone of resilience for Sri Lanka’s economy. As the government continues its reform agenda, a stable and growing remittance sector will be vital to navigating the path toward sustained economic stability.
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