ECONOMYNEXT – Sri Lanka’s worker remittances grew 93 percent from a year ago to 541 million US dollars in July 2023, which was also up from 475.7 million US dollars June, central bank data showed.
Sri Lanka used to get around 500 million US dollars in remittances before monetary instability started to deteriorate from aggressive deployment of macro-economic policy.
In March 2023, shortly before the April traditional new year official remittances surged to 568.3 million dollars as a surrender rule was removed and the rupee was allowed to appreciate.
Sri Lanka official remittances dropped close to 200 million US dollars a month as the country was hit by severe monetary instability from the worst case of Cambridge-Saltwater macro-economic policy (inflating people’s money for growth) deployed since the setting up the central bank.
Large volumes of remittances diverted to unofficial channels especially in 2021 as the official exchange rate lost credibility due to liquidity injections to made to fix the policy rate and other interest rates at artificially low level after cutting taxes.
Sri Lanka has been hit by frequent currency crises and forex shortages, especially after the end of a civil war due to the deployment of Cambridge-Saltwater macro-economic policy (output gap targeting) without a clean float, blowing the balance of payments apart.
Sri Lanka goes to the IMF frequently, and program targets are missed reforms are halted in the second year as rates are cut with aggressive open market operations are deployed to cut rates.
Afte the rupee collapsed from 200 to 360 to the US dollar, destroying real salaries and jobs, tens of thousands of Sri Lankans have sought to seek foreign jobs which can increase remittances.
The remittances, unless mopped up through deflationary open market operations to build foreign exchange reserves, can boost domestic spending, economic activity, increase tax revenues and also expand imports and the trade deficit.
Remittances are Sri Lanka’s main driver of the trade deficit (dollar earnings outside of merchandise exports). Up to July 2023 families of overseas workers earned 3,363 million dollars to import goods, up from 1,878 million US dollar officially last year.
Tourism earnings and government foreign borrowings which are invested locally are the other main drivers of imports and the trade deficit. Currencies collapse due imports financed from central bank open market operations. (Colombo/Aug13/2023)