ECONOMYNEXT – Sri Lanka’s worker remittances were down 60 percent from a year earlier to 325.2 million US dollars in December 2021 with foreign exchange diverted to the unofficial market as money printing undermined the credibility of a 200 to the US dollar peg.
Full year 2021 official remittances were down 22.7 percent to 5,491.5 million US dollars.
Sri Lanka’s official remittances started to fall as money printed by the central bank to keep interest rates down was used up in the economy, driving imports up and foreign exchange controls were tightened, creating a demand parallel market dollars and shattering the credibility of the peg.
In the Undiyal/Hawala traditional net settlement markets, parallel the parallel exchange rate is around 240/250 rupees, making it an attractive path for expatriate workers who send money home.
Sri Lanka’s central bank is offering 10 rupees extra for official transactions in a bid to wean expat worker away from the traditional net settlement systems.
Analysts have urged the central bank to hike rates to stop printing money which creates foreign exchange shortages and boosts import demand.
Though policy has improved from September with money no longer printed to maintain excess liquidity in money markets to target call rate below the ceiling, interventions are sterilized with new money. (Colombo/Jan14/2021)