The Role of Remittances in Sri Lanka's Economic Crisis

Remittances have long been characterised as resilient flows of capital that provide financial relief to migrant households and emerging economies during downturns, crises and other periods of hardship. The stability of Sri Lanka’s remittance economy during the first year of the COVID-19 pandemic seemingly confirmed the resilience narrative, but subsequent and persistent declines in migrant income transfers while economic conditions worsened call underlying assumptions into question. This article examines patterns of remittance transfer to Sri Lanka between January 2020 and December 2022, drawing on Central Bank of Sri Lanka statistics and online remittance surveys with migrant workers employed in West Asia during the pandemic to test prominent assumptions about the drivers of remittance behaviour. Findings indicate little evidence to support explanatory factors linked to the resilience hypothesis, instead pointing to the likelihood that fluctuations in official remittance figures reflect shifts between formal and informal remittance channels. The implications for remittance-dependent economies like Sri Lanka are significant: not only are the dynamics of remittance flows irreducible to simplistic cyclical relationships, but their volatility may transmit exogenous shocks that pose serious threats to macroeconomic stability.

Disclaimer: A final version of this paper will be published in an upcoming issue of APMJ (Issue 2, 2024)