International

Sri Lanka offers incentive for remittances as it struggles to contain severe foreign exchange crisis

The incentive will be paid when the funds are remitted through Licensed Banks and other internationally accepted formal channels and converted into Sri Lankan rupees during the period from Dec. 1 to Dec. 31, the apex bank said in a statement on December 1. File (representational image)   | Photo Credit: Reuters

Sri Lanka’s central bank has offered an incentive to overseas workers who remit money through formal channels as part of its efforts to address the unprecedented foreign exchange crisis faced by the island nation.

The Central Bank of Sri Lanka (CBSL) said it has “decided to pay an incentive of ₹8 per U.S. dollar for workers’ remittances, in addition to the existing incentive of ₹2 under the ‘Incentive Scheme on Inward Workers’ Remittances’”.

The incentive will be paid when the funds are remitted through Licensed Banks and other internationally accepted formal channels and converted into Sri Lankan rupees during the period from Dec. 1 to Dec. 31, the apex bank said in a statement on December 1.

Accordingly, the total incentive for inward workers’ remittances converted into Sri Lankan rupees during the month of December will be ₹10 per U.S. dollar.

“The additional incentive provided by the CBSL is expected to attract more workers’ remittances to the country through the formal banking channels, thereby improving the foreign currency liquidity in the domestic foreign exchange market,” the statement said.

CBSL chief Ajith Cabraal had earlier warned of freezing accounts of those who indulge in unregulated money transfers.

The Sri Lankan rupee is currently pegged at LKR 200 against the U.S. dollar. However, according to analysts, tighter exchange control moves by the Central Bank has resulted in an unofficial parallel exchange rate of LKR 239 and unregulated Undiyal transfer rates between LKR 240-250 against the U.S. dollar.

Lanka is facing a severe foreign exchange crisis, which prompted the government to curtail imports.

Finance Minister Basil Rajapaksa last month told Parliament that the country was facing a serious crisis with foreign reserves at $2.3 billion, down from $7.5 billion when his brother Gotabaya Rajapaksa took over as President in 2019.

Sri Lankans are already facing shortages of milk powder, sugar, wheat flour, cement and cooking gas, which the country imports.

The island’s only oil refinery, Sapugaskanda, was closed last month due to paucity of dollars to import crude oil.

The country’s economy shrank 3.6% last year due to the coronavirus pandemic that adversely affected tourism earnings, a major Forex earner.


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Printable version | Jan 22, 2022 9:16:43 PM | https://www.thehindu.com/news/international/sri-lanka-offers-incentive-for-remittances-as-it-struggles-to-contain-severe-foreign-exchange-crisis/article37801680.ece

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