ECONOMYNEXT – Sri Lanka faces a high risk of its flow of remittances from migrant workers being disrupted by the slowdown in Middle Eastern economies because of the slump in oil prices, Fitch Ratings said.
Workers’ remittance remains a vital source of hard currency for many Asian emerging economies, Fitch Ratings said in a new report.
“Remittance inflows in the Philippines, Sri Lanka, Bangladesh, Pakistan and Vietnam are particularly strong relative to the size of their economies,” it said.
“The growth of remittance inflows is slowing in some of these countries, but the absolute amount remains large and significant.”
The rating agency noted that remittances as a relatively stable source of foreign-currency receipts generally strengthens the external balances of the receiving country.
However the rating agency warned that Sri Lanka was among south Asian countries vulnerable to a slowdown in the economies of Middle Eastern oil exporters.
“Countries whose external accounts depend on remittance inflows would be vulnerable if this source of foreign currency were disrupted,” it said.
“This is especially true if coupled with a high level of worker concentration in certain countries.
“In this light, Fitch believes Sri Lanka is especially vulnerable to such disruptions, while Pakistan and Bangladesh are also relatively exposed.”
The rating agency said that remittance inflows from workers abroad have continued to be strong in Asia, while dropping significantly in some other regions.
“Slowing growth and capital spending among oil producers in the Middle East may reduce employment opportunities for foreign workers from Asian countries, for instance in construction,” Fitch Ratings said.
The risk of lower demand for foreign workers in the Middle East is significant, but has, so far, hardly materialised in those Asian countries dependent on remittances from that region, the report said.
(Colombo/April 29 2016)