• Over 312,000 took up overseas work in 2024 
• Over 115,000 workers left for overseas jobs between Jan. and May 2025 

In the first six months of 2025, Sri Lankans abroad sent home $ 3.7 billion, nearly 19% more than in the same period last year, Central Bank of Sri Lanka (CBSL) figures show. These inflows, mainly from the Middle East, have helped produce a $ 1.5 billion current account surplus despite a merchandise trade deficit of over $ 3.2 billion.

For a country still emerging from its worst post-independence economic crisis, the money has been a financial cushion. It has supported reserves, stabilised the rupee, and funded imports at a time when Foreign Direct Investment (FDI) remains tepid. By end-June, reserves stood at $ 6.1 billion, aided by these steady inflows alongside $ 1.7 billion from tourism.

But economists warn that the same numbers also reveal a dependency that could become a liability, particularly when Sri Lanka begins repaying its restructured external debt in 2028, with annual obligations running into several billion dollars.

The post-crisis rebound

Remittances dipped sharply in 2022, falling to $ 3.8 billion from $ 5.5 billion in 2021, as exchange rate fluctuations and the collapse of confidence in the banking system drove transactions into informal channels. The recovery began in 2023, with inflows rising to $ 5.4 billion following exchange rate unification and Central Bank incentives for formal transfers.

Migration has also surged. The Sri Lanka Bureau of Foreign Employment reports that more than 115,000 workers left for overseas jobs between January and May this year, with Kuwait, the UAE, Saudi Arabia, and Qatar being the dominant destinations. Labour migration to South Korea, Italy, and Canada has also grown, particularly for skilled roles.

Stability with strings attached

While remittances have been a lifeline for foreign exchange earnings, their volatility is well documented. A 2024 study by Dr. Matt Withers, titled ‘The Role of Remittances in Sri Lanka’s Economic Crisis,’ found that perceived stability during the pandemic years masked large shifts between formal and informal channels, leaving official flows highly sensitive to policy changes and exchange rate differentials.

An Asian Development Bank-World Bank report, titled ‘Migration and Remittances for Development in Asia,’ explores how remittance dependence poses policy risks, particularly when combined with high informal transfer reliance, a challenge highlighted in the South Asia-focused study on remittance networks.

The World Bank has similarly cautioned that reliance on overseas workers’ income “can lead to complacency in economic reform and hinder efforts to diversify exports,” a pattern observed in other South Asian economies where remittances exceed 8% of GDP.

Vulnerable to external shocks, social costs

Host country conditions play a decisive role. In the Gulf, where most Sri Lankan migrants are employed, demand for labour depends on oil prices, infrastructure projects, and political stability. A slowdown in construction or a tightening of migrant labour regulations can quickly reduce employment opportunities and earnings.

Currency shifts can also distort flows. A weaker rupee may boost formal transfers, but inflation erodes the real purchasing power of households receiving the money.

University of Colombo (UOC) Department of Economics Professor Sirimal Abeyratne described the relationship between economic hardship and remittances as one where “we make the lives of people even harder, and more people will leave the country, leading to increased remittance flows”.

“That’s exactly what happened with the economic crisis,” he explained. “About three million people have gone abroad, with around one million having left during the past three years. The majority leave because they don’t have proper jobs and don’t get enough reward for the work they do here.”

He said the real solution lay in investment promotion that would generate jobs and incomes domestically. “The only available solution is medium- to long-term investment promotion, so that there will be more industry and service sector investments creating job opportunities.”

Prof. Abeyratne noted that delays in business registrations, corruption, and other internal barriers must be addressed in order to attract investors. 

“There are reforms required in a number of areas. For improved investor confidence, we need policies favouring private investment and trade liberalisation, regulatory and public sector reforms for faster approvals, factor market reforms in land and labour, and to tackle corruption. Policy consistency and long-term predictability are essential. As long as policies change with political cycles, we will not have consistency,” he pointed out. 

He suggested establishing an economic commission to drive these reforms independently of political interference. “These are the areas we need to improve if we want to shift from dependency to a more resilient economy,” he said.

Migration has long-term consequences beyond economics. In 2024, more than 312,000 Sri Lankans took up overseas work, the highest in over a decade. The outflow includes health professionals, engineers, and IT specialists, adding to domestic shortages in key sectors.

Migration ensures that families benefit from higher incomes, improved housing, and better access to education. But extended separations disrupt family life and, in some cases, lead to skill erosion if returning workers cannot find equivalent jobs at home.

Informal networks remain a challenge

One of the lessons of 2022 was how quickly remittances can shift to unrecorded channels when formal systems are perceived as unreliable or uncompetitive. Hawala-type networks continue to operate, offering better exchange rates and faster delivery, but depriving the official system of foreign currency.

The CBSL has responded with preferential exchange rates for remittances, reduced fees, and promotions of digital transfer systems. While these have boosted formal inflows, researchers note that they are stop-gap measures, not structural solutions.

Unsustainable without diversification

As Sri Lanka moves towards 2028, the year large-scale debt repayments resume, the sustainability question becomes sharper. Debt service will absorb a significant share of foreign earnings. Relying on remittances and tourism alone would leave the country exposed to simultaneous shocks, such as a downturn in Gulf economies coupled with a drop in tourist arrivals.

The International Monetary Fund’s (IMF) 2024 Article IV Consultation recommended broadening the export base and attracting stable FDI to reduce vulnerability. Without diversification, it noted, Sri Lanka’s external position would remain heavily dependent on a narrow set of income sources subject to high volatility.

Countries like the Philippines and Vietnam have managed similar transitions by pairing strong remittance inflows with robust export-oriented manufacturing and services sectors. For Sri Lanka, this would mean deepening trade links, improving competitiveness in apparel and tea, and accelerating growth in IT and professional services.

“Relying on remittances is not a sustainable way to build our reserves,” First Capital Chief Research and Strategy Officer Dimantha Mathew said. “We should be looking at diversifying our foreign exchange income sources, instead of trying to rely on tourism, exports, and especially remittances.”

He pointed out that while remittances could increase demand for the factors of production, land, labour, and capital, all three faced constraints in Sri Lanka. “You can’t really buy proper land, and even if you do, it takes ages to get the approvals. Labour regulations are too tight and capital is not easy to access. All these problems make Sri Lanka unattractive for FDI, even in the region.”

Mathew argued that addressing these issues could make Sri Lanka competitive in manufacturing and attract investments that were currently flowing into India, Bangladesh, and other regional economies. He also called for diversifying export markets away from the current heavy reliance on the US and Europe, towards fast-growing economies such as India and China.

“We also need to diversify into electronics and other fast-growing manufacturing segments and be part of the global value chain. Right now, our manufacturing sector is not growing as it should be, and the leading segment is tourism services. That’s the only segment that is up-to-date and sort of growing,” he said.

A warning sign in plain sight

Sri Lanka’s remittance boom in 2025 is indeed proof of the resilience of its overseas workforce. But as several studies have stressed, it is also a sign of domestic economic gaps and the inability to generate sufficient, well-paid employment within the country.

The Government has less than three years before debt servicing ramps up again. Using that time to diversify foreign income sources, strengthen domestic industries, and rebuild investor confidence will determine whether remittances remain a stabiliser or become a brittle crutch.

The Ministry of Finance was not available for comment despite multiple attempts throughout the week. Relevant departments kept transferring the requests to the Treasury, where only Treasury Secretary Harshana Suriyapperuma is reportedly authorised to give details to the media. However, Suriyapperuma too was unavailable for comment. 

For now, billions of dollars are flowing home each year, keeping reserves healthy and imports funded. The harder question is whether Sri Lanka can use this breathing space to fix the weaknesses that made such dependence necessary in the first place.