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Black, White and Grey Markets: The dynamics of foreign exchange and remittances in Sri Lanka



By Bilesha Weeraratne

Written Ahead of International Migrants’ Day on December 18, 2021

Despite the pandemic and related difficulties in remitting, remittances to Sri Lanka had picked up by December 2020 to record year-over-year growth of 5.8 %, contrary to all expectations.

The reasons for such a quick rebound include catching up on postponed remittances, accumulated terminal employment benefits and savings-related remittances of migrant workers laid off due to the pandemic, receipt of counter-cyclical remittances from less frequent remitters and the shift from informal to formal channels. In the current context of the foreign exchange crisis in Sri Lanka, the latter is the most critical factor to focus on.

From Informal to Formal Channels

The fundamental reason for remitters to shift from informal to formal channels was the accessibility issue during lockdowns or limited physical operations. Similarly, the increased risk of informal channels may have encouraged the use of formal channels. With adjustments to operate under the new normal and easing of lockdown measures, it is reasonable to assume that the informal remittance channels may have also evolved to function during the pandemic. As such, the Central Bank of Sri Lanka’s (CBSL’s) Special Deposit Accounts (SDA), with its 1-2% higher interest rate and the LKR 2 higher foreign exchange rate for remittances channelled through licensed commercial banks (LCBs), were woefully inadequate to retain such recently converted formal remitters.

Black, White and Grey Foreign

Exchange Rates

One of the key attractions of informal remittances is the relatively low cost, partly due to the more attractive exchange rate offered by informal channels. The recent movements in the official LKR/USD foreign exchange rate indicated high pressure towards further depreciation and the excess demand amidst the deteriorating supply of USDs within the Sri Lankan economy resulted in a wide divergence between the exchange rate offered by the LCBs – the white market, and non-bank but authorised money exchangers. The latter can be termed ‘the grey market’ because they are permitted to buy foreign exchange, albeit did at their own rate. The divergence was even more pronounced compared with those of the black market or kerb rate.

Figure 1 below indicates a wide gap exceeding LKR 25 across the different foreign exchange markets from July to November 2021. This gap created an opportunity for informal remittances exchanged in the Sri Lankan grey or black foreign exchange market to be more rewarding to remitters. The extra LKR 2 and the subsequent top-up to an extra LKR 10 offered by the LCBs paled in comparison! Finally, in early December 2021, those in the grey market were forced to adhere to the soft pegged LKR/USD 198-202 rate.

Sources: Author’s compilation based on CBSL data and rates obtained by authorised money exchangers and media articles.


As seen in the top panel in Figure 2, when the CBSL intervention stabilised the LKR-USD exchange rate, formal remittances to Sri Lanka shown in the bottom panel continued on a steeper decline in October and November 2021.

Desperate Measures

In 2021 various mechanisms were rolled out to access foreign currency available in the economy. In May 2021, the CBSL directed that LCBs sell 10% of inward worker remittances converted to the CBSL. In October, a previous directive on the mandatory conversion of merchandise export proceeds was expanded to cover services. The change also shifted away from a 25% limit, to converting the “residual” after utilising goods and services export proceeds.

The Attractiveness of Informal Channels

This latest update has resulted in much confusion. Though the CBSL indicated that this directive would not affect worker remittances, operationally, this does not appear very likely. A single Personal Foreign Currency Account (PFCA) may receive foreign exchange as worker remittances from a family member or a well-wisher and payment for trade-in services. The method of distinguishing the two types of inward remittances is still unclear to many. At the same time, many individuals have already received correspondence from commercial banks requesting to convert the funds in their PFCAs.

Amidst the confusion and effort to protect workers’ foreign currency earnings, more migrant workers are seeking informal channels to remit, while others refrain from or delay remitting. Yet others are diverting their remittances to accounts held overseas.

Sources: Top panel; Bottom panel CBSL, Weekly Economic Indicators, various dates

Early Warning

Remittances are seasonal. As such, official remittances in December may increase. But it should not be prematurely considered an indicator of the success of the recent efforts to increase remittances or divert from informal to formal channels. The departures for labour migration during the first half of 2021 are a mere third of the pre-pandemic departures in the same period in 2019. Many migrant workers who return are unable to find foreign jobs and this depleted stock of Sri Lankan migrant workers is a weak base to prop up formal remittances.

Moreover, domestic economic hardship makes many migrants and families desirous of a possible extra return through informal remittance channels. As such, excessive regulations to clamp down on informal remittances may inadvertently create a breeding ground for even greater informal activities and black markets, thereby proving entirely counter-productive to the intended objectives.

Future efforts to increase remittances should not underestimate the resilience of informal remittance channels crafted along the centuries-old method of Undiyal or Hawala. Thus, instead of overly focusing on shifting from informal to formal channels of remittances, policies should mainly focus on ensuring a more realistic exchange rate. Similarly, it is important to encourage labour migration and trade in services and their remittances.

Link to original blog:

Bilesha Weeraratne is a Research Fellow at IPS focusing on internal and international migration and urbanisation. She is also interested in labour economics, economic development, and economics of sports. Prior to re-joining IPS in 2014, Bilesha was a Postdoctoral Research Associate at Princeton University, USA. Bilesha holds a MPhil and a PhD in Economics from the City University of New York, USA. (Talk to Bilesha –

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Technical Certificates of Completion for 64 out of 74 plots of Port City Colombo SEZ



Technical Certificates of Completion for 64 out of 74 plots of the Port City Colombo SEZ have been received by the Commission, a Colombo Port City Economic Commission semi-annual progress report for FY 2022 notes.

A press release by the Commssion said: ‘The Colombo Port City Economic Commission (the Commission), the Single Window Investment Facilitator authorised to assist investors, businesses, and residents in conducting their activities seamlessly and efficiently in Port City Colombo, is pleased to release its semi-annual progress report for FY 2022 from July to December 2022.

‘The Port City Colombo Special Economic Zone (SEZ) is designed to be a prestigious, strategically located city in the heart of South Asia, with sustainable high-quality public spaces and infrastructure, providing top-quality commercial, entertainment, medical, education and lifestyle. International destinations such as DIFC, DMCC, Labuan, Singapore, and Mauritius were studied for their regulatory frameworks, fiscal incentives, and operational efficiency to identify the most competitive processes and policies for Port City Colombo. The benchmarking study was done by global consultants such as Boston Consulting Group, PwC, KPMG, EY, Pinsent Masons, Zico Law, JLL, etc., for the SEZ’s thrust sectors, supported by market feedback on both fiscal and non-fiscal parameters.

‘Port City Colombo SEZ Regulations for the registration, licensing, authorisation and other approvals of Authorised Persons, were published by extraordinary gazette in September 2022, bearing number 2299/46. The SEZ’s Regulations for the registration and licensing of Authorised Person Fees, were also gazetted in September 2022, bearing number 2299/47. The registration of offshore company regulations were gazetted in the month of November 2022, bearing number 2306/54.

‘Agreements have been signed between the Commission and the Registrar General of Companies and Controller General of Immigration and Emigration in order to streamline services offered to Authorised Persons.

‘Sectoral Progress Highlights:

Banking – The Minister of Finance issued licences under the Colombo Port City Economic Commission Act to four (4) banks during the first half of 2022. The Commission has since received requests from three (3) more banks during 2022. Additionally, 10 Financial and Banking Regulations were also drafted under Sections 44 and Sections 45 of the Colombo Port City Economic Commission Act No. 11 of 2021 and are awaiting review with the Monetary Board of Sri Lanka.

Security – The Sri Lanka Police opened a Post on-site for visitor protection, with water access control and lifeguard services being handed to the Sri Lanka Navy. CCTV networks were also installed in public areas.

Social Infrastructure – In addition to an internationally-reputed hospital and school, the Commission has identified the need for a world-class university within Port City Colombo and modified the Master Plan accordingly.

Commercial Infrastructure – With the retail mall infrastructure complete, the commencement of the interior work has begun. The mall will showcase premium merchandise, with an array of cuisine options and entertainment, and is set to commence operations by Q2 of 2023.

Immigration and Visa Arrangements – In collaboration with the Department of Immigration and Emigration, the Commission has introduced three (3) new visa categories for Port City Colombo. These 3 visa categories are – the Investor visa for ten (10) years, the Employment visa for up to five (5) years, and the Resident visa for five (5) years. Port City Colombo visas allow supplementary benefits, such as visas for the spouse, kids, and other support staff members, which can be obtained under the primary visa applicant. The visa fee is USD 200 per year for each applicant. Visas are renewable as required and applicable only to Foreign Investors.

Master Plan Implementation – A planning committee consisting of key stakeholders was created to expedite the approval of building plans submitted under the Development Control Regulations (DCRs) for each plot of the Port City Colombo SEZ. The DCRs provide a clear framework for the development of buildings, land use, green spaces, utility networks, and sustainability measures, among other factors.

Preliminary designs for the Marina Development and Villa Project have been submitted by two investors, with several more plots in the final stages of discussion for lease.

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New wealth tax proposals exert negative impact on shares



By Hiran H. Senewiratne

CSE trading activities yesterday were somewhat negative because investors were worried about the impact of the IMF-inspired new wealth tax proposals on citizens, market analysts said.

Apart from profit- takings, the effects of the new direct tax system on citizens created some confusion for stock market investors, analysts said. This was also highlighted by President Ranil Wickremesinghe in Parliament yesterday.

Amid those developments both indices moved downward. The All Share Price Index went down by 77.4 points and S and P SL-20 declined by 24.6 points. Turnover stood at Rs 1.5 billion with one crossing. The crossing was reported in First Capital Holdings, which crossed one million shares to the tune of Rs 33 million; its shares traded at Rs 33.

In the retail market, top seven companies that mainly contributed to the turnover were; SLT Rs 428 million (4 million shares traded), Lanka IOC Rs 115 million (651,000 shares traded), Expolanka Holdings Rs 98.7 million (716000 shares traded), Lanka Hospitals Rs 57.2 million (440,000 shares traded), Browns Investments Rs 51million (7.5 million shares traded), Capital Alliance Rs 50.40 million (1.5 million shares traded) and First Capital Treasuries Rs 46.2 million (two million shares traded). During the day 69.9 million shares volumes changed hands in 21000 transactions.

Yesterday the rupee appreciated against the US dollar. The buying rate was Rs 312.61 and the selling rate Rs 330.16. Further, the price of gold also reduced due to the rupee appreciation.

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Dialog, Sri Lanka Air Force & EWIS provides digital education to Ravaneswaran Tamil School, Trincomalee



Dialog Axiata PLC recently joined hands with the Sri Lanka Air Force and E-W Information Systems Ltd to re-furbish the computer laboratory of the Ravaneswaran Tamil School in Kanniya, Trincomalee and upgraded the facility with digital educational tools and equipment. This worthy cause was initiated and directed by the Commander of Sri Lanka Air Force (SLAF) and the Group Chief Executive of Dialog Axiata PLC.

Dialog provided Magicbit Pro units with full pluggable and sensor modules to explore creativity with technology. Magicbit is an innovation platform and a STEM tool made for Internet of Things (loT), Robotics, Electronics and Programming. Dialog, furthermore, provided Nenasa TV facility and a pledged support for fully paid student broadband facility. Nenasa TV is a Public-Private-Partnership with the Ministry of Education; an initiative to support grade 1 to 13 students through eight dedicated TV channels in Sinhalese and Tamil. The content aired on each channel is provided and strictly monitored by the Ministry of Education.

The Sri Lanka Air Force in China Bay swiftly provided the labour for all civil work and assisted in repairing computers which needed attention, in a span of a few days. E-W Information Systems Ltd provided brand new desktop computers and sourced some of the hardware required to restore the remaining machines, together with Dialog.

Thamotharampillai Sivanantham, Principal of Ravaneswaran Tamil School, expressed his views on this occasion “Our children had an IT laboratory, but with hardly any usable equipment. Still one of our students won the Regional ICT award in 2022. I am very positive our students will fully benefit from the new ICT equipment and internet services. Additionally, our facility was beautifully restored in just a few days. On behalf of the school administration, parents & students I would like to thank Dialog, Sri Lanka Airforce and EWIS for coming together and providing us this service”.

The students and the school administration were overwhelmed by this generosity, a need for many years. Dialog also offered teacher-student training in the use of the technology and will continue to provide service and support on connectivity and together with the SLAF and EWIS would continue to monitor the progress achieved by the school through the provided technology and pledged further assistance in time. This worthy cause was executed parallel to the 10th edition of the Commanders’ Cup golf tournament in Trincomalee, which was sponsored by Dialog Enterprise.

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