|
|
Business Articles
Are Workers' Remittances a Hedge Against Macroeconomic Shocks? The Case of Sri Lanka
IMF Working Paper, Erik Lueth and Marta Ruiz-Arranz 2007 Despite Sri Lanka’s astonishing resilience the island remains vulnerable to external shocks.
With average growth of close to 6 percent over the last five years and a single recession since
independence, Sri Lanka’s growth performance is remarkable. Nevertheless, the country’s
export base is narrow with garment and tea exports accounting for two-thirds of merchandize
exports; and the expiration of the multifiber agreement in 2005 has added to competitive
pressures. Tourism another major exchange earner has recovered from the tsunami, but faces
new threats from a deteriorating security situation. Finally, the country’s heavy reliance on
oil, particularly in energy generation, exposes it more than others to movements in world
prices. Between 2003 and 2005, Sri Lanka’s oil balance deteriorated by 2.4 percentage points
of GDP, compared to 1.7 percentage points of GDP for the average low-income country in
Asia.
On the other hand, Sri Lanka has access to a large and relatively stable source of foreign
exchange—workers remittances. Over the last three decades, workers remittances have
increased by an annual average of 10 percent and since 1994 constitute the largest source of
foreign financing for the island. Some 4 percent of the Sri Lankan population work abroad,
mostly in the oil rich Gulf states, making Sri Lanka one of the leading recipients of
remittances as a share of GDP. Remittances are a particularly attractive source of foreign
financing, because they are much more stable over time than private capital flows. In
addition, they are unrequited transfers, which unlike other capital flows, do not create
obligations in the future. More.... Submit Article Our Business Articles content reflects important Sri Lankan business information written by leading authorities and experts. We welcome submissions which will be peer reviewed before being accepted for publication. If you wish to propose or submit an article for inclusion here, please contact us. Copyright Notice Business Sri Lanka makes no claim in repect to copyright of articles reproduced here. All content belongs to the respective author unless otherwise indicated. |
|