With the ongoing conflict in the Middle East (ME), Sri Lanka finds itself at a particularly vulnerable juncture as it carefully navigates a fragile economic recovery. Labour migration offers jobs to counteract the lack of opportunities within the economy. Related micro-level remittances prevent households from dipping back into poverty. Similarly, on a macro level, these remittances, of which about 50% come from ME countries, help build foreign reserves, stabilise the economy, and pay for much-needed imports. This blog unpacks some short- to medium-term consequences for migrant workers, highlighting what these attacks and related developments mean for the Sri Lankan economy.

Cancelled Flights and Migrant Departures

Sri Lankan migrant departures to Iran have been negligible in recent years. However, a far larger number of Sri Lankan workers in other Gulf destinations have been affected by the conflict. The United Arab Emirates (UAE) and Qatar, which reported, respectively, 52,067 and 46,693 Sri Lankan migrant departures in 2024, came under attack on 2 March 2026 and 7 March 2026.

Recent departure statistics show that of the 862 Sri Lankans who depart daily for foreign employment through official channels, 666 head to the ME. Additionally, an unknown number depart outside official channels. The large number of flight cancellations indicates that many could not take up or return to their jobs in the Gulf on time. Moreover, growing concerns about the war discourage new migrants from travelling to the ME for employment, while emerging repatriation efforts by other countries and the risk of a prolonged conflict are influencing those already there to return home. There is also a concern that employers may scale back recruitment or suspend existing projects that rely on migrant workers if the conflict continues. These contribute to reducing the stock of Sri Lankan migrant workers in the ME in the short run and weakening potential remittances to Sri Lanka during this critical period of transitioning from economic recovery to stabilisation.

If the conflict continues and the above concerns materialise, preventing Sri Lankans from taking up new jobs in the ME and the extension of expiring contracts, approximately 19,980 foreign employment opportunities would be lost in a month. If those affected look for but do not find jobs in Sri Lanka, the decline in migration could translate to a 5% increase in the stock of unemployed individuals, relative to the third quarter of 2025. Assuming an average contract length of 2.5 years and that 85% of the total 310,915 departures in 2025 went to the ME, the stock of Sri Lankan migrant workers in the region is roughly 660,000. (This number of migrant workers is lower than recent estimates of 1,007,855 Sri Lankans in the ME, as the latter figure includes both workers and other Sri Lankan nationals.) Given that about half of Sri Lanka’s remittances originate from the ME, this implies an average monthly remittance of roughly USD 509 per worker. At the current exchange rate of LKR 311 per USD, the decrease in monthly income in affected households in Sri Lanka is over LKR 150,000. The related drop in consumption can increase risks of poverty and vulnerability with negative implications for human capital development, affecting long-term growth.

Remittances

Despite significant efforts to diversify, Sri Lanka continues to be over-reliant on the ME for remittances. This over-reliance on a highly volatile region further heightens Sri Lanka’s already high vulnerability to remittance shocks. If the ongoing conflict disrupts access to formal remittance channels, i.e., with the disruption of internet connectivity or loss of access credentials/devices during evacuations, there is a growing risk of migrants shifting to informal channels, as was evident in Sri Lanka during the COVID-19 pandemic and the economic crisis in Sri Lanka. Remittances sent through informal channels bypass the Central Bank and balance of payment records, reducing migrant workers’ contribution to recorded foreign exchange reserves used, for example, for imports or debt repayment. In February 2026, the formal monthly remittances of USD 729 Mn covered more than the increase in foreign reserve assets of USD 452 Mn or the previous month’s imported consumer goods bill (USD 475 Mn).

Navigating Implications

As such, the conflict, weaker employer capacity in the ME, and disruptions to flights, employment, and economic activity can translate into risks for Sri Lanka through declines in the stock and flow of migrants and remittances. Similarly, the uptick in informal remittances could challenge the stability of Sri Lanka’s foreign reserves. The combined effect implies that the ME conflict could lead to concerning implications for foreign exchange reserves, import capacity, unemployment, consumer demand, poverty, and vulnerability. These implications contribute to slowing the economic recovery process in Sri Lanka.

To address the potential threats, Sri Lanka can adopt a few strategies.

To ensure consistent income and remittances, the Sri Lankan foreign missions in the ME can play an important role by reaching out to large-scale employers to reaffirm contractual obligations for wages. Similarly, the missions can explore available social protection measures, such as insurance, wage protection mechanisms, and compensation to migrant workers. Moreover, the Sri Lanka Bureau of Foreign Employment (SLBFE) can increase awareness of available unilateral social protection mechanisms in Sri Lanka, such as insurance schemes, to help migrants weather any immediate income gap. Additionally, the SLBFE can introduce programmes to ensure that those who would have been deployed retain their skills for redeployment or are redirected to reskilling and upskilling activities, providing appropriate certifications.

Sri Lanka should also prepare for large scale repatriation, should the need arise. Learning from experience during the COVID-19 pandemic, a starting point would be the reactivation of the Contact Sri Lanka portal for the government to connect with Sri Lankans in the ME. Initially, this portal could be used as a mechanism to assess the sentiment among overseas Sri Lankans about their safety and need to return and prepare for large-scale socioeconomic reintegration. If repatriation does take place, Sri Lanka ought to take measures to ensure that returning migrant workers have received their service letters and other such credentials, as well as payments and benefits.

To minimise the risk of remittance diversion to informal channels, the formal remittance channels in Sri Lanka can offer timely and attractive incentives such as competitive exchange rates and waiving or reducing transaction fees associated with formal remittances from the ME. At the same time, Sri Lanka should urgently finalise the initial steps taken to further diversify destination countries of migrant workers, such as Thailand, Italy, Romania, and Germany, minimising the risk of over-reliance on ME remittances.

by Dr. Bilesha Weeraratne, Research Fellow, Institute of Policy Studies,Sri Lanka