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Worker remittance inflows lose steam



Why they are important and how to revive them

By Charith Gamage

In a period of decreasing reserves and foreign exchange shortages, migrant worker remittances had once been a welcome stream of income for Sri Lanka in fulfilling its foreign exchange shortfalls. With the recent sharp fall in remittances, the ongoing situation is causing chaos in the island nation’s mission to increase foreign exchange revenues. The following is an examination of how remittances aided Sri Lanka in the past, the causes of the sudden drop, and most importantly, how to keep remittances flowing as before.

“That’s a nice set of coloured pencils; where did you buy it?” This is not an uncommon question a Sri Lankan student would ask their classmate after noticing that they have a school accessory not commonly available in Sri Lanka. The friend explains that it wasn’t bought from a local shop but that it has instead been sent by a parent working abroad. Although it is a trivial conversation at school, it reveals a unique segment in the Sri Lankan economy.

Nearly 1.5 million of the country’s labour force, ranging from unskilled to skilled and professional, migrate for employment purposes. These workers frequently contact their families and send home part of their earnings and occasional goods. These remittances, that trickle down to the larger economy, have been a vibrant component that balances out the island nation’s foreign exchange position in respect to the rest of the world.

At a time when the external sector is confronted with daunting challenges such as depleting foreign exchange reserves and a stumbling dollar-rupee exchange rate, there has recently been a sharp drop in remittances, making the efforts to get on top of the country’s forex crunch an uphill battle. As of October 2021, Sri Lanka’s remittances receipts have dropped 14 percent compared with the respective period of 2020. This divergence has become increasingly acute in recent months, with inward remittances in September and October 2021 falling sharply to USD 353 and 317 million, respectively, the lowest levels for both months since 2010 and 2009. (Data sources: CBSL historical data and the provisional figures mentioned in the institution’s weekly reports; the November and December 2021 figures were not known at the time of writing this article)

Why are remittances important?

Before explaining the reasons behind the recent shortfall, a simple current account analysis, which summarises what countries spend and take in from abroad, provides a more comprehensive picture of the importance of this vital economic undercurrent.

The current account (CA) of countries like Sri Lanka can be written as CA = (X-M) + NI + NT. Where (X-M) is the trade deficit or the gap between the country’s exports and imports (of goods and services), NI denotes net income, and NT indicates net transfers, of which remittances are a part. Remittances have been a lifesaver for decades, to fill the country’s persistent trade deficit and negative net income due to interest payments on foreign loans. Without this support, the country has to find other means, such as additional foreign borrowings, to fill the gap.

Figure 1, excluding 2021 data, shows that the flow of remittances has reached a tipping point in the mid-2000s and peaked around 2014, growing slowly since the 1990s. After this, it contributed roughly USD 7 billion per year from 2015 to 2020.

Figure 1

The figure also shows (X-M) plus NI and remittances as a percentage of (X-M) plus NI as separate series over the past two decades. One of the notable facts is that with the improved remittances flow, the widening trade deficit plus negative net income has been steadily supported by around 80 percent since 2014. Therefore, the recent remittances drop is a massive blow for the island nation, primarily in balancing its higher imports over exports (financing the deficit in the trade account).

What happened in 2021?

The South Asian region is a good proxy for analysing Sri Lanka’s remittances dynamics in 2021 to determine if this is a regional issue. First and foremost, is the remittances drop a common issue in the region? The answer is not quite so. The World Bank expects the region’s remittances to grow by eight percent in 2021 compared with the previous year, with key players India, Bangladesh and Pakistan earning more than they did in 2020 (

Figure 2

By comparison, Sri Lanka’s most recent remittances dynamics seem quite different from this regional theme. As Figure 2 shows, since May 2021, there has been an apparent divergence from its remittances flows compared with the corresponding periods of the previous years, indicating that remittances have entered a rocky road. Some explanations suggest that the overvalued formal dollar-rupee exchange rate provides remittances with a lower value than the informal channels; hence, remitters use informal channels such as the ‘Hawala’ or ‘Undiyal’ system, which offers them higher rates. (U. Jayasinghe. Reuters. December 6, 2021. Those systems operate so that when workers hand over dollars to a middleman in their host country, the recipient in their home country can withdraw an equal amount of rupees through another agent. Consequently, this causes those remittances to bypass the formal banking system and be unaccounted for, and perhaps may not even be received in Sri Lanka.

Although this might be one of the reasons, the amount lost through the official channels appears to be greater than what studies reveal; for example, some studies show a three percent decrease from formal channels for a 10 percent rise in black market premium. Suggesting that there could be other reasons, such as official channel users restricting transfers in the belief that the rate differential in parallel markets is an implicit tax on them.

Consequently, it seems there are two tasks to fulfil in order to rectify the remittances flow:

(i) shifting informal channel users back to a formal banking channel

(ii) encouraging those who might have used formal channels and limited remittances to remit more.

The country’s ongoing actions, such as offering greater (premium) exchange rates to remitters and cracking down on illegitimate channels, seem to target shifting informal channel users back to a formal banking channel. However, it is important to remember that whenever there is a higher price for dollars outside the formal system, senders are likely to hunt for loopholes, reducing the effectiveness of the efforts.

As a result, these initiatives should be better paired with strategies that motivate workers themselves to use official channels and send more, rather than making them feel they should accept a lower price for their hard-earned money. To better design these policies, it is imperative to find out what motivates them to send money.

Other factors affecting remittances

Although an altruistic motive could be one reason migrant workers remit money, studies show (for example an Indian study by P. Jijin, et al. Macroeconomic determinants of remittances to India. Econ Change Restruct. [2021]) that it is an investment motive that motivates senders to remit money ( Investment motive could be more pronounced among seasoned workers willing to shift their savings in bulk for investments or start businesses for the family. These flows are due to their overall confidence in the home country economy and its ease of doing business, including fewer restrictions and regulations imposed on their goals.

Over the past decade, Sri Lanka’s highest percentage increases in remittances, 24 percent and 25 percent occurred respectively in 2010 and 2011, following the boost in confidence in the economy after the end of the country’s 30 year-long civil war in 2009. This shows how these flows are intertwined with better economic outlooks.

This idea is supported by Abbas, Masood, and Sakhawat (2017) in a Pakistani research study spanning from 1972 to 2012, who show that financial and political determinants and variables such as stable macroeconomic conditions influence increased remittance flows (

How to best manage remittances flow

Restoring remittances to previous levels is a critical challenge for Sri Lanka since it provides a lifeline to the economy in contrast to high-cost international borrowings. Studies show that, in most countries, the black market and the share of remittances flowing through it tend to feed each other; therefore, policies that bring remittances back to the formal channels would automatically shrink the black market as well.

Rather than predetermining the premium, authorities can identify the sender’s switching point between the informal and formal channels. From this, they can identify the level of relaxation on the exchange rate and the exact premium for remitters for a shorter period, for effective absorption of the parallel markets.

Given the disadvantages of the black market, such as lack of or no legal protection, lack of transparency, and the possibility of scams, there is no need to offer a stark contrast between the two markets to entice people to switch back. But, sufficient incentives need to be offered so that they do not feel they are penalised for using the formal channels.

In addition, since remittances are linked to investment intent, another front should encourage them to send more money home and through formal channels. It is important to build a network and boost their confidence by relaxing restrictions on them, providing investment opportunities and business guides for entrepreneurship, including credit and facilities to import machinery at concessional rates. Providing a robust safety net for their loved ones to help them out during the turbulent times of global economies is also essential. Overall, to help the country smooth out these flows, more diplomacy and a win-win situation for workers abroad seem to be key in harnessing effective outcomes.

Finally, given the procyclicality (tendency to move alongside the economy’s cyclical condition) of remittances, the issue should not be isolated from the rest of the economy. Higher remittances are tied to better home-country economic conditions, so they are linked with policies that promote higher investment and export-led growth with subdued inflation that does not erode home-country investments. In particular, one important requirement is allowing the formal rate to reflect the real situation in the external sector by improving the overall macroeconomic situation with a business-friendly environment and consistent policies. That is the key to perfecting this mission.

(The writer is a PhD candidate attached to Monash University, Australia. The views and opinions expressed in this article are those of the writer, and he could be reached at

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UK support for govt.’s pragmatic reconciliation process



Lord Ahmad with GL

By Jehan Perera

The government would be relieved by the non-critical assessment by visiting UK Minister for South Asia, United Nations and the Commonwealth, Lord Tariq Ahmad of his visit to Sri Lanka. He has commended the progress Sri Lanka had made in human rights and in other areas as well, such as environmental protection. He has pledged UK support to the country. According to the President’s Media Division “Lord Tariq Ahmad further stated that Sri Lanka will be able to resolve all issues pertaining to human rights by moving forward with a pragmatic approach.” The Minister, who had visited the north and east of the country and met with war-affected persons tweeted that he “emphasised the need for GoSL to make progress on human rights, reconciliation, and justice and accountability.”

Prior to the Minister’s visit, President Gotabaya Rajapaksa had announced in Parliament that his government had not violated nor would support “any form of human rights violations.” This was clearly an aspirational statement as the evidence on the ground belies the words. Significantly he also added that “We reject racism. The present government wants to safeguard the dignity and rights of every citizen in this country in a uniform manner. Therefore I urge those politicians who continue to incite people against each other for narrow political gains to stop doing so.” This would be welcome given the past history especially at election time.

The timing of Lord Ahmad’s visit and the statements made regarding human rights suggest that the forthcoming session of the UN Human Rights Council in Geneva, commencing on February 28, loomed large in the background. The UN High Commissioner for Human Rights will be presenting a written report on that occasion. A plethora of issues will up for review, including progress on accountability for crimes, missing persons, bringing the Prevention of Terrorism Act in line with international standards, protecting civil society space and treating all people and religions without discrimination.

The UK government has consistently taken a strong position on human rights issues especially in relation to the ethnic conflict and the war which led to large scale human rights violations. The UK has a large Tamil Diaspora who are active in lobbying politicians in that country. As a result some of the UK parliamentarians have taken very critical positions on Sri Lanka. Lord Ahmad’s approach, however, appears to be more on the lines of supporting the government to do the needful with regard to human rights, rather than to condemn it. This would be gratifying to the architects of the government’s international relations and reconciliation process, led by Foreign Minister Prof G L Peiris.


In the coming week the government will be launching a series of events in the North of the country with a plethora of institutions that broadly correspond to the plethora of issues that the UNHRC resolution has identified. War victims and those adversely affected by the post war conditions in the North and livelihood issues that arise from the under-developed conditions in those areas will be provided with an opportunity to access government services through on-the-spot services through mobile clinics. The programme coordinated by the Ministry of Justice called “Adhikaranabhimani” is meant to provide “ameliorated access to justice for people of the Northern Province.”

Beginning with Kilinochchi and Jaffna there will be two-day mobile clinics in which the participating government institutions will be the Legal Aid Commission, Office for National Unity and Reconciliation, Office for Reparations, Office on Missing Persons, Department of Debt Conciliation Board and the Vocational Training Authority to mention some of them. Whether it is by revising 60 laws simultaneously and setting up participatory committees of lawyers and state officials or in now launching the “Adhikaranabhimani” Justice Minister Ali Sabry has shown skill at large scale mobilisation that needs to be sustained. It is to be hoped that rather than treating them as passive recipients, the governmental service providers will make efforts to fulfill their need for justice, which means that the needs of victims and their expectations are heard and acknowledged.

It will also be important for the government to ensure that these activities continue in the longer term. They need to take place not only before the Geneva sessions in March but also continue after them. The conducting of two-day mobile clinics, although it will send a message of responsiveness, will only be able to reach a few of the needy population. The need is for infusing an ethic of responsiveness into the entirety of the government’s administrative machinery in dealing with those problems that reaches all levels, encompassing villages, divisions, districts and provinces, not to mention the heart of government at the central level.

The government’s activities now planned at the local level will draw on civil society and NGO participation which is already happening. Government officials are permitting their subordinate officials to participate in inter-ethnic and inter religious initiatives. It is in their interest to do so as they would not wish to have inter-community conflicts escalate in their areas which, in the past, have led to destruction of property and life. They also have an interest in strengthening their own capacities to understand the underlying issues and developing the capacity to handle tensions that may arise through non-coercive methods.


Many of the institutions that the government has on display and which are going to the North to provide mobile services were established during the period of the previous government. However, they were not operationalized in the manner envisaged due to political opposition. Given the potency of nationalism in the country, especially where it concerns the ethnic conflict, it will be necessary for the government to seek to develop a wide consensus on the reconciliation process. The new constitution that is being developed may deal with these issues and heed the aspirations of the minorities, but till that time the provincial council system needs to be reactivated through elections.

Sooner rather than later, the government needs to deal with the core issue of inter-ethnic power sharing. The war arose because Sinhalese politicians and administrators took decisions that led to disadvantaging of minorities on the ground. There will be no getting away from the need to reestablish the elected provincial council system in which the elected representatives of the people in each province are provided with the necessary powers to take decisions regarding the province. In particular, the provincial administrations of the Northern and Eastern provinces, where the ethnic and religious minorities form provincial majorities, need to be reflective of those populations.

At the present time, the elected provincial councils are not operational and so the provincial administration is headed by central appointees who are less likely to be representative of the sentiments and priorities of the people of those provinces. In the east for instance, when Sinhalese encroach on state land the authorities show a blind eye, but when Tamils or Muslims do it they are arrested or evicted from the land. This has caused a lot of bitterness in the east, which appears to have evaded the attention of the visiting UK minister as he made no mention of such causes for concern in his public utterances. His emphasis on pragmatism may stem from the observation that words need to be converted to deeds.

A video put out by the UK Foreign, Commonwealth and Development Office confirms a positive approach with regard to engaging with the Sri Lankan government. In it Lord Ahmad says “the last three days illustrated to me that we can come together and we can build a constructive relationship beyond what are today with Sri Lanka. We can discuss the issues of difference and challenge in a candid but constructive fashion.” Lord Ahmad’s aspiration for UK-Sri Lankan relations needs to be replicated nationally in government-opposition relations, including the minority parties, which is the missing dimension at the present time.

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Yohani…teaming up with Rajiv and The Clan



I know many of you, on reading this headline, would say ‘What?’

Relax. Yohani, of ‘Manike Mage Hithe’ fame, is very much a part of the group Lunu.

But…in February, she will be doing things, differently, and that is where Rajiv and the Clan come into the scene.

Rajiv and his band will be embarking on a foreign assignment that will take them to Dubai and Oman, and Yohani, as well as Falan, will be a part of the setup – as guest artistes.

The Dubai scene is not new to Yohani – she has performed twice before, in that part of the world, with her band Lunu – but this would be her first trip, to Oman, as a performer.

However, it will be the very first time that Yohani will be doing her thing with Rajiv and The Clan – live on stage.

In the not too distant past, Rajiv worked on a track for Yohani that also became a big hit. Remember ‘Haal Massa?’

“She has never been a part of our scene, performing as a guest artiste, so we are all looking forward to doing, it in a special way, during our three-gig, two-country tour,” says Rajiv.

Their first stop will be Dubai, on February 5th, for a private party, open-air gig, followed by another two open-air, private party gigs, in Oman – on February 10th and 11th.

Another attraction, I’m told, will be Satheeshan, the original rapper of ‘Manike Mage Hithe.’

He will also be a part of this tour (his first overseas outing) and that certainly would create a lot of excitement, and add that extra sparkle, especially when he comes into the scene for ‘Manike Mage Hithe.’

Yohani and her band, Lunu, last performed in Dubai, a couple of months back, and Satheeshan, they say, was the missing link when she did her mega internet hit song – live, on stage.

There was a crowd to catch her in action but it wasn’t a mind-blowing experience – according to reports coming our way.

A live performance, on stage, is a totally different setup to what one sees on social media, YouTube, etc.

I guess music lovers, here, would also welcome a truly live performance by Yohani de Silva.

In the meanwhile, I’m also told that Rajiv Sebastian plans to release some songs of the late Desmond de Silva which he and Desmond have worked on, over the years.

According to Rajiv, at this point in time, there is material for four albums!

He also mentioned that he and his band have quite a few interesting overseas assignments, lined up, over the next few months, but they have got to keep their fingers crossed…hoping that the Omicron virus wouldn’t spike further.

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Multi-talented, indeed…



Thamesha Herath (back row – centre) and her disciples (students)

We all know Trishelle as the female vocalist of Sohan & The X-Periments, so, obviously it came to me as a surprise when it was mentioned that she is a highly qualified Bharatanatyam dancer, as well.

What’s more, she has been learning the skills of Bharatanatyam, since her kid days!

And, to prove that she is no novice, where this highly technical dance form is concerned, Trishelle, and the disciples (students) of State Dance Award winning Bhartanatyam Guru, Nritya Visharad Bhashini, Thamesha Herath, will be seen in action, on January 29th, at 4.00 pm, at the Ave Maria Auditorium, Negombo.

Said to be the biggest event in Bharatanatyam, this Arangethram Kalaeli concert will bring into the spotlight Avindu, Sithija, Mishaami, Nakshani, Venushi, Veenadi, Amanda, Sakuni, Kawisha, Tishaani, Thrishala (Trishelle), Sarithya, Hewani, Senuri, Deanne and Wasana.

In addition to her singing, and dancing skills, Trishelle has two other qualifications – Bachelor in Biomedical Science, and Master in Counselling Psychology.

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