What is an Inward Remittance?
Non-resident Sri Lankans move billions of rupees to India each year, ranging from financing investments to sustaining family members back home. The transfer of funds from overseas to Sri Lanka is referred to as inward remittance. Likewise, whenever you receive any money in your Sri Lankan savings account from a relation abroad, this is referred to as inward remittance.
The Advantages of Inward Remittances
Let’s look at how inbound foreign inward remittances benefit both households and the Sri Lankan economy.
Individual and family advantages
Foreign remittances enable them to offer an ideal lifestyle for their families in Sri Lanka and medical treatment and education for their children.
Sri Lanka is a significant beneficiary of remittances from abroad. Inward remittances are a valuable source of foreign currency and stimulate demand in India. This is beneficial to the local economy.
Remittances in Sri Lanka
From 2009 to 2021, remittances in Sri Lanka averaged 512.19 USD Million, with a top of 812.70 USD Million in December of 2020 and a low of 241.30 USD Million in February of 2009. This page displays the most statistic showing the total value for Sri Lanka Remittances as well as prior releases, historical highs and lows, short-term and long-term forecasts, an economic calendar, survey consensus, and news. Sri Lanka Remittances – figures, historic statistics, and charts were most recently updated in March 2022.
Governments occasionally give incentives to enhance remittance flows and direct them to constructive purposes. However, such policies may be more troublesome than measures to increase access to banking services or lower transaction costs. Tax breaks may stimulate remittances, but they may also encourage tax avoidance. Matching-fund initiatives to draw remittances from migrant organizations may take cash away from several other local funding priorities, while efforts to redirect remittances to investment have been unsuccessful. Remittances are essentially private monies that should be regarded similarly to other family income forms. Efforts to raise savings and improve expenditure allocation should be achieved through changes in the entire investment climate, rather than just focusing on remittances.
The reward for Money transfers from Inward Workers
After considering the requests of Sri Lankans working abroad, the Central Bank of Sri Lanka (CBSL) has decided to continue the payment of an additional Rs. 8.00 per US dollar for capital inflows, paid in addition to the incentive of Rs. 2.00 per US dollar under the “Incentive Scheme on Inward Workers’ Remittances,” for such workers’ remittances channeled via Licensed Banks and other formal channels and converted into Sri Lankan rupees, until The decision to keep this extra boost of Rs. 10.00 per US dollar results from the positive trends in worker remittances so far in December 2021.
Furthermore, CBSL has opted to absorb the transaction charges paid by Sri Lankans working overseas while remitting money to Sri Lanka via exchanging houses and banks up to a certain maximum. As a result, a considerable number of Sri Lankans working overseas will now be able to transfer funds to Sri Lanka without incurring any fees. CBSL will release operational instructions in this respect, including the beginning date, in due course.
Dedicated as New Year Bonus
The Finance Ministry announced an additional incentive remitted by migrant employees until the Sinhala-Tamil Avurudu holiday on Wednesday.
The decision comes after the Cabinet of Ministers resolved on Monday to provide Rs. 8 more per dollar remitted following the currency’s depreciation to Rs. 230. Previously, migrant workers’ remittances received an additional Rs. Ten for every dollar sent through banking channels.
According to Central Bank data, worker remittances, a significant source of foreign cash in Sri Lanka, fell to a ten-year low of $ 5.49 billion in 2021. Moreover, it dipped to a 13 year low of $ 259 million in January of this year, even more troubling.
Is There No Clarification?
The Finance Ministry has failed to explain the extra Rs.20 for every migrant dollar promised as an Avurudu incentive.
The Finance Ministry declared the incentive for worker remittances 48 hours after the Central Bank floated the rupee, but neither the reasoning nor the specifics of executing it, especially with a floating currency rate.
Due to a lack of clear information from the Finance Ministry, banks and migrant income recipients are in the dark about the Avurudu season incentive.
Given that the rupee has established its value over the Us dollar ever since floating on Monday, it makes little sense to provide an incentive for remittances since the current foreign exchange rate has virtually destroyed the informal channels, which provided a greater rate for remittances and dollar changes.
The Central Bank’s and Finance Ministry’s policies are increasingly diverging, as seen by the two agencies’ recent statements and acts and inactions.
The Finance Ministry has yet to execute seven of the eight elements in the policy package suggested by the Central Bank a short while ago to supplement the latter’s policies so that the exogenous recession of the policy measures is equally absorbed by the government’s rates and fiscal department.
Why is it Deemed Unwise?
The Sri Lankan rupee is presently trading at LKR 200 per US dollar.
Analysts believe that the Central Bank’s stricter exchange control measures have resulted in an unauthorized secondary exchange rate of LKR 239 and unrestricted Undiyal transfer prices of LKR 240-250 versus the US dollar.
Lanka is experiencing a severe foreign exchange crisis, prompting the government to restrict imports.
Last month, Finance Minister Basil Rajapaksa warned Parliament that the government was in an acute crisis, with foreign reserves standing at USD 2.3 billion, down from USD 7.5 billion because his brother Gotabaya Rajapaksa took over as president in 2019.
Sri Lankans are already suffering a scarcity of milk powder, sugar, wheat flour, cement, and cooking gas, all imported into the nation.
Sapugaskanda, the island’s sole oil refinery, was forced to close last month due to insufficient funds to import crude oil. In addition, the country’s GDP dropped by 3.6% last year due to the coronavirus outbreak, which harmed tourist revenues, a significant source of foreign currency.
Sri Lanka doesn’t want to go into bidding with something like the Hawala, Cabraal stated on Saturday, alluding to a traditional means of moving payments that involve money brokers and exist outside of established banking systems. Sri Lankans do not want the rupee to fall any lower. They would like to restore past remittance figures.
These are purely the opinions of the author based on observations and analysis of financial platforms and a study of public reviews and ratings on the new incentive of Rs. 20 offered by the finance ministry of Sri Lanka. Excerpts from various sources have been used to clarify the facts in this article. A glossary of all the sources used can be found at the end of the article. This article is for educational purposes only and is not financial advice.