Remittances drop could have silver lining

Central Bank yesterday said that a decline in temporary migrant workers could be positive for Sri Lanka if the tradable exports segment picks up. 

In July remittances increased by 3.4% year on year to $ 592.1 million but numbers from January-July declined by 5.7% year on year to $ 3,946.7 million.   

“I think this is the first time I am seeing an absolute decline. It is disturbing at one level but taking a medium term view it’s not entirely unwelcome. Remittances have been financing 70%-80% of our trade deficit so it has been tremendously useful. We have a very tight labour market and some of the growth sectors are having trouble getting people so the ideal scenario would be to see FDI and investment coming into the export sector and absorbing more labour. So a shift of labour from temporary migration to a growing export sector, in my view, would be a positive development,” he said.

However, remittances remain crucial to Sri Lanka, he noted.  

“We would not want to see a sharp decline in remittances, because that would be disruptive. But if we see export expansion taking place in the medium term then some easing of remittances may actually be a good thing. There will be more labour available in the country for more dynamic growth sectors in the economy.” Any tax changes to remittances would only have a marginal impact,” he said. 

 “We have one of the most regressive tax systems in the world where we collect over 80% through indirect taxes. These are all measures that are designed to help the Government meet its objective of that 60:40 balance.”