Fall in remittances could hit Sri Lanka economy: economist
ECONOMYNEXT – A slowdown in remittances, Sri Lanka’s highest foreign exchange earner, because of troubles in the Middle East could hit the economy badly, an economist said.
“Lower oil prices have an impact on remittances,” said Saman Kelegama, Executive Director of the Institute of Policy Studies, a think-tank.
“Remittances account for nine percent of GDP and are the highest foreign exchange earner in Sri Lanka. A decline in remittances is going to hit the economy strongly.”
If prosperity in the Middle East declines, households which recruited two people in the past, now only hire one, Kelegama said.
Another factor was the strengthening of the US dollar, he told a forum on the island’s economic outlook held by Asia Securities in collaboration with Verité Research, a think-tank.
Most Middle Eastern currencies are pegged to the US dollar which is strengthening with capital flows to the US and more flow expected with a possible rate hike by the Federal Reserve in February, Kelegama said.
Weaker Middle East currencies will also reduce remittances in dollars.
Central bank data shows that growth in remittances have already begun to slow down.
Kelegama also warned of the possibility of Middle East countries delinking their currencies from the dollar and allowing them to depreciate.
“The moment they do so remittances flows to countries like Sri Lanka will further decline.”