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'Regulations won't control hawala'

01 Aug 2022

  • Prof. Sirimal Abeyratne says focus should be on earning more dollars, not imposing more rules 
  • Notes ‘hawala’ has gained more traction amidst lost confidence on country
  • Says speculations are that people have repatriated funds out of SL as much as they can
    By Imesh Ranasinghe Sri Lanka should focus on ways of earning more dollars at the moment rather than putting regulations on foreign exchange in order to bring down the premiums offered by unlicensed money transfer channels, known as “hawala” or “undiyal”, said University of Colombo Professor in Economics Sirimal Abeyratne. In an Interview with TV Derana, he said that the main reason why people have resorted to uch informal channels to send money to Sri Lanka is that they have lost confidence in the country. He added that there are reports of groups of people taking the maximum amount of dollars allowed to be taken out of the country to invest that money in foreign countries. “People who work abroad send their money to their families via Singapore, rather than directly to Sri Lanka, because they do not have confidence in the country,” Prof. Abeyratne said. “We have to address this loss of confidence among people – with more regulations implemented, people will lose more confidence and find loopholes to surpass those regulations. The ‘hawala/undiyal’ system is one such loophole.” So, he added, unless Sri Lanka brings in more foreign exchange, the black market premiums cannot be brought down, because there is no way of using reserves to intervene in the matter, as the reserves have dried up. “We used the reserves and intervened in the first few months, but in doing so, we lost our reserves. Then we took loans to intervene, but now we don’t have anyone to provide loans for us. So there is nowhere for us to turn; the only solution is to earn dollars at this moment,” he said. It is estimated by many economists that the Central Bank of Sri Lanka (CBSL) has injected about $ 5.5 billion in the months following the fixation of the dollar at Rs. 200, which, many of them opine, was an unnecessary use of foreign reserves resulting in the depletion of the reserves in the country. Earlier this month, CBSL Governor Dr. Nandalal Weerasinghe said that remittances dropped to $ 274 million in June, as the black market premiums that had been reduced by the ban on open accounts shot up after the Government relaxed the ban for 10 essential food items, despite the Central Bank’s recommendations against the move. He said that within two weeks of the ban on open accounts, the black market premiums came down to Rs. 355 from Rs. 400, which, according to him, was the main reason why remittances increased to $ 304 million in May 2022, from $ 248 million in April.


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