Foreign remittances to the country dropped last year due the grey market that had flourished offering attractive exchange rates, said Central Bank Governor Ajith Nivard Cabraal. He was addressing a gathering to launch the National Remittance Mobile Application at the Central Bank last week.
He said the ‘Lanka Remit’ app will help increase the inflows of foreign remittances to the country and encourage the use of formal remittance channels when sending remittances to the country.
The remittance app will promote and encourage expatriate workers to choose formal channels for remittances curtailing the use of informal channels or the grey market to remit money, Cabraal said.
However, statistics show that Sri Lanka’s foreign remittances are low compared to its regional peers whose remittance inflows have grown steadily over the years.
Sri Lanka’s foreign remittance inflows which had been around USD 1 billion at the start of the millennium had increased to around USD 7 billion by 2020. However, remittances in Nepal and Bangladesh had grown from around the same amount in 2000 to around USD 8 billion and USD 22 billion by 2021.
Sri Lanka’s remittance inflows decline to around USD 5.4 billion last year is partly due to the grey market that offered attractive exchange rates and the divergence in exchange rate offered by licensed commercial banks and non-bank but authorised money exchangers, analysts said. A gap exceeding Rs. 25 across different foreign exchange markets were seen from July to November last year providing an opportunity for informal remittance markets to flourish despite the incentive offered by the Central Bank to promote remittance through formal channels.
The Central Bank offered an incentive of Rs. 10 to bolster foreign remittances via licensed banks and other formal channels.
The government aims to increase the number of those leaving for foreign employment to 300,000 this year and targets a remittance inflow of USD 10 billion by 2030.
LankaClear (Pvt) Ltd. Chairman Dr. Kenneth De Zilwa said Sri Lanka needs to be innovative, make the remittance cost structure competitive and work together to promote synergies with banks and the finance sector to boost foreign of remittance inflows.
The working committee set up by the Central Bank to propose new low cost remittance channels recommended the implementation of the remittance mobile application to promote remittances with features such as self registration of users, the ability to link global money transfer operators and global FinTechs to facilitate remittances from any country, instant fund transfer to any bank account/mobile wallet in Sri Lanka.
Bank of Ceylon, People’s Bank, Sampath Bank, Hatton National Bank, National Savings Bank, Commercial Bank of Ceylon, Nations Trust Bank, National Development Bank, Cargills Bank Limited, Mobitel and Dialog Axiata are already linked to the remittance application while other remittance service providers are expected to join soon.
“Lanka Remit” also expects to offer a number of value-added services such as direct bill payment facility from overseas and to facilitate remittances to Sri Lanka using cards issued overseas.
Worker remittances have been a key pillar of Sri Lanka’s foreign currency earnings which had covered around 80 percent of annual trade deficit over the past two decades.
Boosting remittance inflows comprises a host of social- economic benefits such as a steady and smooth supply of forex to the formal banking system and the reduction of income and regional disparities.