The banning of open accounts and measures to track down Hawala and Undiyal operations have helped reduce the quantum of informal remittances said Central Bank Governor Dr. Nandalal Weerasinghe at the last monetary policy media briefing this month.
He said the interest rates of these informal settlement systems have come almost in line with the rates offered through the formal banking system which is a good sign for the economy and in encouraging foreign remittances through the formal channels.
Open Accounts was banned this year to curtail illegal trade transactions that had paved the way for a grey market to flourish.
The Central Bank in April said imports would be permiiited only the basis of Letters of Credit (LCs), Documents against Payment (DP) or Documents against Acceptance (DA) terms.
We have seen a significant control in the grey forex market operations and unofficial remittance channels since the ban was in force, Dr. Weerasinghe said.
‘Hawala’, an Arabic word denoting the concept of ‘sharing’ has also been in use for as a means of remitting money from one country outside the formal banking system.
However, according to Central Bank data, workers’ remittances and tourism earnings has been lower than expected, impacted by unfavourable conditions domestically and globally.
Gross official reserves, as at end June 2022, are estimated at US dollars 1.9 billion, including the swap facility from the People’s Bank of China equivalent to around US dollars 1.5 billion, which is subject to conditionalities on usability.
The country has commenced debt restructuring negotians with creditors to seek an IMF supported program to shore up foreign remittance that have hit rock bottom.
However Dr. Weerasinghe stressed that delays in fiscal reforms and SOEs improving financial positions will only further the time of economic recovery.
Monetary policy alone cannot solve the current economic crisis. Fiscal reforms are important, the governor said.
He said the Central Bank alone cannot solve the current economic. Fiscal policy too must come into the overall picture to achieve economic stability.
The governor warned that inflation now at historic levels could reach 70 percent in the coming months affecting the poor and the vulnerable most.
The economy which contracted 1.6 percent I the first quarter this year is estimated to record negative growth this year according to the Central Bank.