Workers’ remittances pick up in May but challenge for CBSL persists

 Workers' remittances in May picked up month-on-month in May but remained negative at cumulative level as per latest data released by the Central Bank.

Inflows in May were $ 304 million, up from $ 249 million in April but lower by 34% compared with $ 460.1 million a year ago. The May 2022 figure also failed to match or better $ 318 million achieved in March.

The gain in March was partly linked to the free float of the currency which saw the rupee plunge by over 30% in early March.

A more realistic exchange rate regime and curbing of unofficial channels were expected to encourage inflow of workers remittances via banking channels. However, May performance confirms continuous challenge for the CBSL to shore up inflows.

During the year up to 10 June, the rupee depreciated against the dollar by 44.3%. Given the cross-currency exchange rate movements, the rupee depreciated against the Indian rupee by 41.7%, the Euro by 40.7%, the pound sterling by 39.8% and the Japanese yen by 35.1% during this period.

CBSL said yesterday considering continued pressures in the domestic foreign exchange market, it introduced measures in May, including the restrictions on open accounts and consignment payments terms that have helped curtail activity in the informal market and narrow the gap between the official and grey market exchange rates. 

Further, the CBSL commenced providing daily guidance on the degree of volatility (with an allowable two-sided variation margin) to all licensed commercial banks from 13 May based on exchange rate determined in the interbank market on the preceding day. 

“The implementation of these measures has brought in a greater stability in the exchange rate determination thus far,” CBSL added.

Last year workers remittances dropped to a 10-year low of $ 5.5 billion, down by 23% from 2020.