Sri Lanka Foreign Remittances to Peak in 2017!

Sri Lanka’s foreign remittances is expected to peak in 2017 with those seeking employment abroad beginning to decrease, Central Bank Governor Nivard Cabraal has said.

“We believe that in time to come there will be a reverse migration that will take place in our country,” Cabraal was quoted in transcript as saying at an investor forum in London, organized by the Colombo Stock Exchange and Securities and Exchange Commission.

“Sri Lanka by 2017 would see a slight reduction in the remittances that would come in, particularly because we would see that reverse migration to take place.

“There will be new jobs that will be created in the country to ensure sufficient employment and scope for those returnees.

“We also hope that we will have more labour moving out of the country in the future, for a short period, but we hope this will be skilled rather than unskilled labour. It is an interesting challenge and we want to make sure that all these conflicting parts are managed.”

Chairman of Sri Lanka’s SEC Nalaka Godahewa, CSE Chairman Krishan Balendra, Chief Executive Rajeeva Bandaranaike, London Stock Exchange Chief Executive Alexander Justham and Gorden Frazer, an international fund manager were among those who spoke.

John Keells Holdings, Commercial Bank of Ceylon, Dialog Axiata, Hayleys, Access Engineering, Tokyo Cement, People’s Leasing and Finance, Laugfs and MTD Walkers, were listed companies that went to the forum,

Large numbers of Sri Lankan have been moving out of the country to areas like the Middle East seeking jobs as domestic opportunities were less or real wages were low due to chronic currency depreciation.

Lack of opportunities for females in particular has seen them moving to areas like housekeeping, which have reduced over the years.

In the first four months of this year, remittances rose 12.2 percent to 1,663.4 million US dollars.

With about 1.8 million Sri Lankans estimated to be working abroad foreign remittances have been a key source of income for households and economic activity in the country.

Foreign remittances (exports of labour) when spent by their recipients in the domestic economy, have been a key driver of Sri Lanka’s trade deficit, in addition to net foreign borrowings by the Treasury (exports of debt) for deficit spending.

The Treasury has also borrowed foreign currency savings in banks by non-resident workers that are not immediately spent by their recipients through its so-called Sri Lanka Development Bonds to deficit-spend further boosting domestic spending and imports.

Fund manager Gordon Frazer, who said Sri Lanka’s stock were attractively priced, including banks said the country must guard against the twin deficits, or the budget and external current account deficits.

“However there are some issues, Sri Lanka has some large twin deficits, and it must be careful to avoid the trap that many other emerging markets have fallen into by becoming dependent on foreign savings rather than domestic savings, to grow,” he had said.

Remmittances, while driving the trade deficit, does not expand the current account deficit as they are sub-components of the same category, but Treasury borrowings abroad (which are inflows to the financial account) helps widen the current account.