Fact Check
At a public meeting in Japan, MP Dissanayaka claim ed that the availability of foreign currency enabling the purchase of essentials such as gas, fuel, and medicines is due to (1) the inflow of worker remittances and (2) the suspension of debt repayments.
To verify the claim, FactCheck.lk consulted the Central Bank of Sri Lanka’s Annual Economic Review 2023, Weekly Economic Indicators, and the Ministry of Finance’s Annual Report for 2023.
To assess the claim, we first compared the period of shortages before the suspension of debt payments (May 2021 to April 2022) against the period when currency was available to purchase essentials (the calendar year 2023). Exhibit 1 shows that the main drivers of change in the sources of foreign currency were (1) a reduction in imports, (2) a reduction in debt repayments, and (3) an increase in worker remittances, in that order.
Therefore, the increase in foreign currency available for essential imports was primarily due to the decrease in overall import demand, followed by the suspension of most external debt repayments. The increase in remittances contributed less than these two. However, as an absolute contribution to the inflow of foreign currency, remittances, at USD 497 million, are higher than net-debt inflows and rival the net contribution from exports (assuming that exports, on average, have an import share of around 50%, as is the case with garment exports).
This is further demonstrated by Exhibit 2, which shows that after the suspension of debt repayments, worker remittances, amounting to USD 11.9 billion, represented the highest contribution to inflows of foreign currency in Sri Lanka.
In sum, the MP correctly identifies the increase in worker remittances and the reduction in foreign debt repayments as two of the major reasons for the rise in foreign reserves. While the increase in remittances is not the main reason for the change in foreign currency inflows before and after the shortages, remittances, as argued by the MP, are, in absolute terms, the primary contributor to foreign currency being available for essential imports.
Therefore, we classify the MP’s claim as TRUE.
Exhibit 1: Change in the contributors to foreign reserves
| Monthly Average (USD Million) |
Before default (May ’21 – Apr ’22) |
After default (Jan ’23 – Dec ’23) |
Change in Monthly Average |
| Imports | (1,770.0) | (1,400.9) | 369.0 |
| Debt Repayments | (360.4) | (120.0) | 240.4 |
| Worker Remittances | 344.8 | 497.5 | 152.7 |
| Tourism Earnings | 88.5 | 172.3 | 83.9 |
| Debt Disbursements | 210.6 | 214.1 | 3.4 |
| Exports | 1,076.9 | 992.6 | (84.4) |
Source: Central Bank of Sri Lanka and Ministry of Finance Annual Reports (2022 – 2024)
Exhibit 2: Contributors to the increase in foreign reserves (May 22 – Jun 24)
| Figures in USD MN | |
| Inflow of worker remittances | 11,872 |
| Inflow of tourism earnings | 4,170 |
| Net Debt Inflows* | 1,961 |
| Net Trade Balance | (9,500) |
| Other | (4,687) |
| Net Change in FOREX Reserves | 3,815 |
Source: Central Bank of Sri Lanka and Ministry of Finance Annual Reports (2022 – 2024)
*Note: The net debt inflows do not include the net inflows for May and June 2024 as the data was not available at the time of writing this fact check.
Sources
.