Sri Lanka has long depended on the financial lifeline provided by its migrant workers—especially those employed in the Middle East(Middle East Crisis). Over a million Sri Lankans work abroad, and a significant portion of them are employed in Gulf countries such as Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, and Oman. For decades, the money they send back home has formed a critical component of Sri Lanka’s foreign exchange earnings.
But in recent months, escalating geopolitical tensions and conflict in parts of the Middle East have begun to cast a shadow over this crucial source of income. From armed conflicts and shifting oil prices to diplomatic tensions and labor policy reforms, the region’s instability directly affects the economic future of Sri Lanka’s working-class diaspora—and, by extension, the nation’s macroeconomic stability.
A Vulnerable Lifeline
Foreign remittances accounted for nearly 10% of Sri Lanka’s GDP before the recent economic downturn. In 2022 alone, Sri Lanka received around USD 3.8 billion in foreign remittances, with over 60% coming from the Middle East. For many families back home, this money is the difference between survival and poverty. It funds everything from school fees to medical bills, food, home construction, and even small businesses.
However, the once-stable job markets in Middle Eastern nations are increasingly uncertain. Ongoing regional tensions, such as the Israel-Gaza conflict, Houthi rebel activity affecting shipping routes in the Red Sea, and Iran-Gulf power struggles, are all creating ripple effects that could harm Sri Lanka’s remittance flow.
War, Risk, and Repatriation
In areas close to conflict zones, migrant workers face increased risks. In some cases, they are forced to return home, cutting off income abruptly. The uncertainty has also led to reduced hiring, as employers in the Middle East scale down non-essential operations and postpone hiring decisions amid conflict-related instability.
During past escalations, such as the Gulf War or the Syrian crisis, thousands of Sri Lankan workers were repatriated—often without compensation or with wages unpaid. With current tensions brewing once again, there is growing concern about the safety and job security of Sri Lankan workers in conflict-prone areas.
Economic Pressure on Host Countries
Geopolitical tensions also influence oil prices, which form the backbone of many Middle Eastern economies. While rising oil prices can temporarily boost the GDP of oil-exporting countries, prolonged conflicts tend to redirect national budgets towards defense spending, cutting into public and private sector job growth—particularly in construction, hospitality, and domestic services, where many Sri Lankans are employed.
Moreover, tighter fiscal budgets in host countries often lead to stricter labor laws, delayed payments, or mass layoffs of foreign workers. This situation puts Sri Lankan remittance flows at significant risk. In some Gulf nations, “nationalization” policies aim to reduce reliance on foreign labor altogether, potentially squeezing out migrant workers gradually.
Banking Channels and Informal Transfers
Another indirect but equally troubling impact of the Middle East crisis is on banking and money transfer systems. When tensions rise, banking sanctions or cross-border currency regulations are sometimes imposed, disrupting the ability of migrant workers to send money legally through traditional channels. This can result in a resurgence of hawala or other informal money transfer networks, which are difficult to monitor and not captured in official remittance data—leading to inaccurate national figures.
Sri Lanka already struggles with foreign exchange shortages, and every dollar lost through informal channels exacerbates the crisis. Furthermore, remittances sent informally offer less financial protection to workers and recipients in case of disputes or fraud.
Domestic Impact: From Family Incomes to National Reserves
For Sri Lanka, the consequences are multifold. At the household level, many families could fall below the poverty line if regular remittance flows are interrupted. Children’s education, women-led household savings, and rural entrepreneurship could all face setbacks.
At a national level, reduced foreign currency inflow impacts the Central Bank’s ability to stabilize the rupee, pay off international debts, and maintain essential imports such as fuel and medicine. The government’s ambitious economic recovery plans depend heavily on improving remittance channels and restoring foreign reserves, especially in the aftermath of the 2022 debt default.
A fall in remittances not only weakens Sri Lanka’s fiscal position but also affects its international creditworthiness and investor confidence.
The Path Forward: Policy, Diplomacy, and Digital Solutions
In light of the current crisis, Sri Lanka’s foreign employment strategy must adapt. First, strengthening diplomatic ties with Gulf nations to ensure the safety and legal protection of migrant workers is crucial. Bilateral agreements should include clauses on repatriation protocols, wage guarantees, and safe working conditions during conflict periods.
Secondly, digital remittance platforms must be promoted to ensure workers use formal channels. The Central Bank can incentivize usage through better exchange rates, lower fees, or reward programs. Partnerships with fintech companies could also expand access to rural families, enhancing financial inclusion.
Third, the country needs to diversify destination markets for its migrant workforce. While the Middle East remains dominant, opportunities in East Asia (Japan, South Korea), Europe, and even parts of Africa must be actively explored. A broader employment base would reduce vulnerability to regional crises.
Conclusion
The Middle East’s unfolding crises are a stark reminder of how interconnected Sri Lanka’s economic fate is with global developments. What happens in distant war rooms or oil terminals reverberates through small homes in Galle, Kurunegala, and Batticaloa. Protecting and empowering our migrant workers must become a cornerstone of Sri Lanka’s economic strategy.
At a time when the country is seeking financial stability and international credibility, safeguarding remittances is not just a social obligation—it is an economic necessity.
