Remittance Surge Masks Deeper Risks in Sri Lanka’s Recovery

Sri Lanka’s external accounts have received a powerful boost from migrant worker remittances, offering short-term stability to an economy still healing from its 2022 collapse. Official data show remittances rising 27 percent year-on-year to US$673.4 million in November 2025, while inflows during the first 11 months of the year reached US$7.2 billion, a 20.7 percent increase compared to the same period last year. This already exceeds the previous annual record of US$7.16 billion set in 2017, underlining the growing dependence on overseas workers to keep the economy afloat.

The momentum is not accidental. Remittances rebounded strongly after the Central Bank abandoned the parallel exchange rate regime, narrowing the gap between official and informal rates. This policy shift effectively dismantled the incentive for expatriates to rely on Undiyal and Hawala networks, redirecting billions of dollars back into the formal banking system. The result has been a steady strengthening of official foreign exchange inflows at a time when export earnings and foreign investment remain fragile.

The trend follows a structural shift in Sri Lanka’s labour market. Since the 2022 sovereign default, the country has sent a record number of workers abroad, increasingly targeting skilled and professional employment to generate higher-value inflows. This strategy paid dividends in 2024, when remittances climbed 10.1 percent to US$6.57 billion, the highest level in six years. In contrast, inflows had fallen sharply in 2021, when artificial interest rate controls and money printing triggered parallel exchange rates, driving remittances underground.

However the current surge raises uncomfortable questions about sustainability. While remittances are now Sri Lanka’s largest single source of foreign exchange, they are also a reflection of domestic economic weakness. Rising migration points to limited job creation at home, skills leakage, and long-term demographic pressures. Moreover, remittances remain vulnerable to external shocks such as recessions in host countries, tighter immigration policies, or geopolitical instability in labour destinations.

Recognising the importance of this inflow, the government’s 2026 Budget proposes housing loans and a contributory pension scheme for overseas workers to incentivise continued remittance flows. While these measures may strengthen loyalty to formal channels, analysts warn that policy credibility, exchange rate stability, and low transaction costs will matter more than incentives alone.

 

In the immediate future, remittances are expected to remain strong, supported by seasonal inflows in December and continued outward migration. However, relying on migrant earnings as a cornerstone of macroeconomic stability is a risky substitute for export diversification and domestic growth. Without deeper structural reforms, today’s remittance windfall may simply mask unresolved vulnerabilities in Sri Lanka’s recovery.