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UNCLAS SECTION 01 OF 04 COLOMBO 000625 
 
SIPDIS 
 
SIPDIS 
 
DOL/ILAB FOR TINA MCCARTER 
STATE FOR SCA/INS AND DRL/IL LAUREN HOLT 
MCC FOR S GROFF, D NASSIRY AND E BURKE 
 
E.O 12958: N/A 
TAGS: ECON ELAB EFIN PGOV PHUM SOCI SMIG CE
SUBJECT:  SRI LANKA, COUNTING ON RISING REMITTANCES, TRIES TO 
INCREASE MIGRANT LABOR FORCE 
 
REF:  COLOMBO 536 
 
¶1. Summary: Sri Lankans abroad formally remitted a record $2.3 
billion in 2006, up 21 percent from 2005.  Higher salaries in the 
Middle East, where a majority of Sri Lankan migrant workers go, 
partially drove this rise.  A higher share of remittances sent 
through formal, rather than informal, channels also seems to have 
contributed to the rise.  As a major source of foreign exchange, the 
increase in remittances helped offset Sri Lanka's sharply higher oil 
import bill in 2006.  The Government is counting on another large 
jump in remittances in 2007 to keep Sri Lanka's balance of payments 
positive.  However, signs that migrant worker numbers are falling 
may make this unrealistic.  End summary. 
 
2006 REMITTANCES UP, BUT THE NUMBER OF NEW MIGRANT WORKERS DECLINED 
---------------------------------------- 
 
¶2. Formal remittances to Sri Lanka rose by 21 percent in 2006, to a 
total of $2.3 billion, according to the Central Bank.  Remittances 
equaled about 8 percent of GDP and were the third largest source of 
foreign exchange for Sri Lanka, behind only garment and tea exports. 
 By comparison, foreign direct investment inflows to Sri Lanka in 
2006 were only $480 million, according to the Asian Development 
Bank.  Remittances are critical to Sri Lanka's economy and to 
individual livelihoods.  They helped keep Sri Lanka's balance of 
payments positive in 2006 by offsetting the 25 percent jump in Sri 
Lanka's oil import bill, which totaled $2.1 billion.  In war-torn 
areas of the country, such as the Jaffna Peninsula, remittances are 
almost entirely responsible for keeping families solvent. 
 
¶3. According to the Sri Lanka Bureau for Foreign Employment (BFE), 
there are 1.4 million Sri Lankan citizens, or an eighth of the 
country's labor force, legally working abroad.  The rate of new 
labor migration is slowing, however.  The BFE reported that the 
201,143 workers that joined their compatriots abroad in 2006 was a 
13 percent drop from the number in 2005.  The Association of 
Licensed Foreign Employment Agencies (ALFEA), a statutory body under 
the BFE, says the decline was even steeper in early 2007.  An ALFEA 
representative told Econoff that so far in 2007, the number of new 
outbound migrant workers had dropped more than 30 percent compared 
to the same time period last year.  (Paragraphs 8-16 discuss 
possible reasons for this decline.) 
 
¶4. Despite the decline in numbers of new workers going abroad, the 
Central Bank reported that total remittances increased in 2006, 
largely due to rising wages earned by workers in both the Middle 
East and East Asia.  An International Monetary Fund study also 
concluded that high oil prices in 2006 drove higher wages for guest 
workers in net oil exporting countries. 
 
¶5. Another apparent reason for the large increase in remittances was 
workers' growing use of formal banking methods to transfer money 
back to Sri Lanka.  Sri Lanka's Central Bank and various private 
banks are encouraging this, both for commercial and policy reasons. 
The Central Bank's recently introduced a free non-resident banking 
account for new migrant workers with a USD 5 initial deposit.  Local 
banks are tapping into this lucrative market by offering home loan 
and insurance products, through which workers can pay in 
installments through remittances.  Ambassador recently encouraged 
the Central Bank Governor to look at the financial incentives India 
is offering its overseas workers for more ideas to encourage formal 
remittances from overseas. 
 
¶6. Minister of Foreign Employment Keheliya Rambukwella told 
Ambassador that the 2006 $2.3 billion in formal remittances amounted 
to 70 percent of total remittances and that the government is trying 
to tap into the remaining 30 percent.  (Note: A more commonly cited 
figure in Sri Lanka is that formal remittances make up only 30-35 
 
COLOMBO 00000625  002 OF 004 
 
 
percent of total remittances.)  Hawala and other informal money 
transfer systems are more widely used and have hindered the Central 
Bank's ability to accurately measure the volume of remittances. 
Technological advances may also influence workers' preferred money 
transfer methods.  Recently, Sri Lanka's largest mobile phone 
company announced plans to launch telecommunications-facilitated 
fund transfers.  Visa International is also planning to introduce 
'card to card' online transfers. 
 
MIDDLE-EAST: WORKING CONDITIONS DETERING MIGRANTS 
--------------------------------------------- ---- 
 
¶7. Approximately 90 percent of Sri Lanka's migrant labor force works 
in the Middle East, generating about 80 percent of total 
remittances.  They are highly concentrated in Saudi Arabia and 
Kuwait, followed by the United Arab Emirates, Qatar, and Lebanon. 
70 percent are unskilled laborers, mostly housemaids.  Among the 
housemaids, 60-70 percent are Muslims who are considered best able 
to cater to their employers' requirements.  In 2006, the number of 
workers to Saudi Arabia dropped 31 percent, while the number headed 
for Kuwait fell 17 percent. 
 
¶8. The causes of the decline in numbers of Sri Lankans working in 
the Middle East are difficult to pinpoint.  The official view is 
that wages for unskilled workers in Sri Lanka are catching up to 
rates in the Middle East.  A BFE official told local press, "We find 
that some of the maids in Colombo earn between 95-100 dollars, so 
there is less incentive to travel abroad" for salaries between 100 
and 125 dollars per month.  Political violence and poor working 
conditions are likely significant reasons for the decline.  The Sri 
Lankan media has extensively covered the hardships workers face in 
the region, including the following: the stranding of 50,000 Sri 
Lankan workers during the 2006 Lebanon war; a January 2007 report 
that a group of Sri Lankan migrant workers were duped by a 
recruitment agency into traveling to Iraq; the March 2007 news that 
Saudi Arabia beheaded four Sri Lankan laborers charged with armed 
robbery; and widespread physical abuse and breaches of contracts. 
 
¶9. There may also be decreasing demand in some countries for Sri 
Lankan workers.  The ALFEA rep told Econoff that Sri Lankans have 
gained a reputation in the region for insisting on reasonable 
working conditions and for breaking their contracts to return to Sri 
Lanka (where working conditions generally are good) if their 
expectations are not met.  This is a major concern for Sri Lanka's 
manpower agencies as each returnee not only produces a monetary 
loss, but also damages the reputation of the associated agency. 
According to ALFEA, Middle Eastern countries now prefer importing 
migrant workers from Bangladesh, India, and Ethiopia over those from 
Sri Lanka.  An apparent illustration of this was the April decision 
by the Abu Dhabi government not to hire Sri Lankan workers, after 43 
workers in a military textile factory were fired after allegedly 
going on strike to demand the removal of a female Sri Lankan 
supervisor. 
 
EAST ASIA: FEWER SRI LANKANS GOING THERE EITHER 
--------------------------------------------- -- 
 
¶10. The number of Sri Lankan migrant workers, mainly skilled 
laborers, in Malaysia and Singapore has declined sharply due to new 
regulations by those governments and to workers' unmet demands for 
better working conditions.  Malaysia experienced the largest 
decrease since January 2007, with almost 80 percent of Sri Lankan 
migrant workers returning home.  In 2005, there were approximately 
4,000 skilled laborers, primarily male; currently there are 
approximately only 500, according to ALFEA.  ALFEA cites the Sri 
Lankan Embassy in Malaysia reporting that Malaysian employers were 
violating workers' contracts, mainly by shorting workers on their 
regular wages and overtime payments.  The Malaysian government did 
 
COLOMBO 00000625  003 OF 004 
 
 
little to prevent such abuses, especially those perpetrated by 
unregulated Malaysian labor procurement agencies that supply workers 
to private companies. 
 
¶11. There was a 70 percent decline in new migrant workers to 
Singapore since the beginning of this year, as compared to the same 
time period in 2006.  Currently there are 10,000 Sri Lankans working 
in Singapore, but since January 2007, less than 300 new workers have 
migrated.  Singapore's new requirement that workers pass a mandatory 
English written exam upon arrival appears to be the cause of the 
sudden drop.  South Korea has become the one bright spot for Sri 
Lankan workers; minimum wage for laborers there is between 
$1,000-1,500 per month, against the $200-250 or less offered in the 
Gulf.  Presently there are 15,000 unskilled Sri Lankan laborers in 
South Korea and South Korea has agreed that Sri Lanka can send 
11,000 more. 
 
EFFORTS TO INCREASE MIGRANT WORKER NUMBERS AND PAY FACE CHALLENGES 
--------------------------------------------- --- 
 
¶12. To more effectively administer Sri Lanka's migrant labor force, 
in January 2007 the government created a new ministry to house the 
Bureau of Foreign Employment -- the Ministry of Foreign Employment 
Promotion and Welfare, separate from the Ministry of Labour 
Relations and Manpower.  The BFE's objectives remain to administer 
Sri Lanka's 774 licensed manpower agents, to work with foreign 
governments to eliminate exploitation of workers by illegal 
recruitment agencies, to improve working and living conditions, and 
to increase minimum wages. 
 
¶13. Minister Rambukwella informed Ambassador that the Ministry is 
working to slowly reduce the number of unskilled laborers going 
overseas, especially to the Gulf, by approximately 10 percent next 
year, while still raising total remittances to $3 billion by sending 
more skilled and semi-skilled laborers.  To encourage overseas 
employment of skilled laborers, the government plans to establish 
institutes of specialized training under the National Vocational 
Qualification System, with a focus on medical and computer 
education.  Targeted regions and countries to send skilled laborers 
include the Gulf, Israel, Australia, Italy, Japan, South Korea, and 
the United States.  In Italy, for example, there are approximately 
50,000 legal Sri Lankan workers and another 50,000 illegal. 
 
¶14.  In the Gulf, the government is trying to increase the number of 
skilled and semi-skilled workers, while still protecting the current 
unskilled labor force there.  One initiative to educate outgoing 
migrant workers is a plan by the Ministry of Foreign Employment to 
provide training to unskilled workers before they depart to the 
Gulf.  A three-day course would inform them of local laws and their 
rights respective to the country of arrival.  Further, the 
government also believes it can negotiate an increase in housemaids' 
minimum wage in the Gulf from $150-175 a month.  Minister 
Rambukwella told Ambassador that Filipino housemaids in the Gulf 
receive a minimum $400 a month; Rambukwella sees this as an 
opportunity for Sri Lankan housemaids to undercut that price while 
still increasing their current monthly salary.  Ambassador 
emphasized to Minister Rambukwella the importance of vocational 
training, particularly noting that the United States has a huge need 
for nurses and semi-skilled laborers in the hotel and construction 
industries.  The Minister agreed, noting that Sri Lanka had received 
inquiries from American hotel and construction contractors. 
 
¶15. Despite these initiatives, Sri Lanka's poorly coordinated labor 
policies are contributing to the decline of migrant labor.  On 8 
March, to coincide with International Women's Day, the Minister of 
Child Development and Women's Empowerment proposed to restrict women 
with children under five years old from working abroad.  Mothers of 
children over five would have to obtain approval from district 
 
COLOMBO 00000625  004 OF 004 
 
 
officials.  The proposal elicited criticism for denying women the 
right to choose where they work and for impeding poor mothers' 
ability to provide for their families.  Although these proposals 
have not yet been implemented, labor agencies told us that they have 
created the misimpression that women with young children are already 
banned from working abroad, and have therefore reduced the numbers 
of such applicants. 
 
¶16. A relatively healthy employment environment in Sri Lanka is also 
mitigating the government's effort to increase migrant worker 
numbers.  The economy grew by over 7 percent in 2006 (reftel), with 
the agriculture, industry, and services sectors all strong. 
Additionally, the government continued hiring large numbers of civil 
servants specifically to reduce unemployment among recent college 
graduates.  The impact of both these developments was a drop in the 
official unemployment rate in Sri Lanka from 7.3 percent in 2005 to 
6.5 percent in 2006.  According to ALFEA, furthermore, many workers 
with employable skills prefer to stay in Sri Lanka despite the 
somewhat lower pay compared to working overseas.  This is reflected 
by the fact that so far this year numbers of skilled laborers 
departing to work abroad have not increased. 
 
COMMENT: COUNTING ON REMITTANCES THAT MAY NOT HATCH 
--------------------------------------------- ------ 
 
¶17. In 2006, the $2.3 million in remittances helped keep Sri Lanka's 
balance of payments in the black.  In 2007 and ensuing years, as the 
government begins to repay a bulge of short term loans created by 
tsunami debt deferral and recent debt financing, it hopes increased 
 
SIPDIS 
remittances will continue to keep the balance of payments positive. 
For 2007, the government is optimistically forecasting remittances 
to again rise by a third, to $3.0 billion.  For this to happen, Sri 
Lankan migrant workers will either have to earn a lot more or else 
significantly increase their use of formal channels for their 
remittances.  This seems unlikely given the lower number of workers 
going out and the fact that informal remittances are still generally 
cheaper than formal transfers. 
BLAKE