According to Sri Lanka’s leading private commercial banks, the Central Bank of Sri Lanka (CBSL) incentive to attract more foreign remittances has failed to produce significant results in December, The Sunday Morning Business learns.
Speaking to us, an official from a private commercial bank said that there has not been a big increase in remittances received in December, but added that the decline in remittance inflows has stopped and has reached a manageable level compared to November.
According to the official, the halt in decline may primarily be due to the pressure put forward by the CBSL on the informal channels of remittances, which has resulted in people being pushed to some extent towards formal modes.
“It may not have been because of the incentive given by the CBSL,” sources said.
Another reason for the increased inflow of remittances could be due to December being a peak month for inflows.
According to CBSL data, for the last three years, December has seen a somewhat significant increase in remittance inflows when compared to November.
In 2018 Sri Lanka received $ 584 million in December compared to $ 555 million in November 2018; similarly, in December 2019 the country received $ 665 million compared to $ 515 million in November that year. Remittance inflows for December 2020 amounted to $ 812 million compared to $ 612 million in November 2020.
Earlier in December, the CBSL announced an incentive to provide Rs. 8 more for each US dollar converted at the banks, adding to the previous incentive of Rs. 2. The US dollar was given a maximum of Rs. 210 with the addition of Rs. 10 to the fixed exchange rate of the dollar, which is between Rs. 198-203.
However, the official who spoke to us said that there has been some kind of inflow due to the encouragement of the Rs. 10 offered by the CBSL to each US dollar converted at the banks.
They also noted that the decline in remittances could be expected to completely stop in the coming months, after which an increase in inflows could be experienced.
Meanwhile, an official from another private commercial bank mentioned that during the first two weeks of December, remittance inflows received by their bank were the same when compared to the same period in November.
However, the bank official said that the numbers were extremely low when compared to the corresponding months of December in the previous years.
Since June, Sri Lanka’s foreign remittances have been on a declining trend, worsening the foreign exchange shortage in the country. Last month the remittances fell to a record low of $ 271 million as the gap between the fixed exchange rate offered by the banks and the market rates increased, further pushing people towards informal channels.
The informal channels offer about Rs. 240 for a US dollar.
The CBSL said that they will take tough legal action against these informal channels which buy dollars at a higher rate while freezing bank accounts with unusual transaction activities.
However, an official from a state-owned bank said that the bank has experienced a greater inflow of remittances in December when compared to November, mainly due to the incentive offered by the CBSL.
A banker from another private commercial bank said that the remittance inflows have declined further when compared to November.
Last Monday (27 December), the CBSL announced that they have decided to extend the Rs. 10 incentive till 31 January 2022 due to the requests by many Sri Lankan workers abroad.