Sri Lanka clamps down on remittances as it battles forex crisis

COLOMBO (AFP) – Colombo threatened yesterday to freeze the bank accounts of Sri Lankans working overseas who send money back to the country using informal money changers, as depleted foreign exchange reserves drive a thriving black market for dollars.

The pandemic has wreaked havoc on the island’s economy, and the government has banned imports of food, vehicles and other items in an effort to shore up its stockpile of foreign currency.

These restrictions have led to severe shortages of food, cooking gas and cement, and Sri Lanka was forced to shut its only oil refinery last month as the country ran out of dollars to import crude.

The official exchange rate of IDR202 to the dollar, offered by commercial banks that have run out of foreign currency, is well below the IDR240-245 offered by informal money changers now in the central bank’s crosshairs.

The bank’s governor Ajith Nivard Cabraal said that migrant workers and others would face consequences if they sent their earnings home outside of official channels.

The bank has also offered to pay an IDR10 incentive to overseas workers who send money back through official channels, up from IDR2 before.

Sri Lanka is struggling to service its foreign debt and forex reserves had fallen to USD2.26 billion at the end of October, around a third of the levels when the government took office two years ago. Ratings agency Moody’s downgraded Sri Lanka’s foreign debt rating in October and the government unveiled a drastic austerity budget last month in an attempt to rein in its runaway deficit.

Central bank officials have said the country is facing its worst foreign exchange crisis since the advent of a free economy and have demanded all exporters turn over their foreign exchange earnings to the government within six months.

Sri Lanka recorded its worst-ever economic performance last year with a 3.6-per-cent contraction, fuelled largely by the fallout from the pandemic on tourism.