popular among illegal immigrants. it is, therefore, important for the remittance receiving countries, where possible, to compete with informal systems and divert remittances to the formal banking channels. banks and financial institutions should be more innovative and make arrangements to collect / capture remittances from legal / illegal migrants at the field level and coordinate with the host country ’ s banking / financial institutions to transfer monies to remitter's home country speedily and at a reduced cost. informal transfers largely take the form of cash. the absence of an efficient financial infrastructure at the remitter's end as well as receiver's end is also found to be a discouraging factor that contribute to the use of informal channels. in some destinations, there is no access to sophisticated infrastructure in the host countries for cross - border transfers. migrant workers, therefore, depend heavily on informal systems. in this context, a global attempt should be made to facilitate cross - border remittance transfers as such transfers have a significant impact on the development of many nations. part ii - importance of remittances in sri lanka's economy i now proceed to illustrate how dependent sri lanka is on worker remittances. over the last couple of years, worker remittance has been the single largest inflow of foreign exchange after exports in sri lanka. remittances have played a significant role in financing the widening trade deficit and maintaining balance of payment surpluses. during 2005, over 75 % of the trade deficit was financed by worker remittances. 2005 ( a ) 1, 065 1, 315 1, 984 3, 807 5, 522 6, 347 textile and garments 1, 853 2, 982 2, 895 tea all other exports 1, 474 1, 839 2, 642 export earnings ( services ) 1, 540 worker remittances 1, 160 foreign direct investment foreign loans and grants inflows trade balance loans and grants total imports gdp export earnings ( goods ) worker remittances, as a % of total current account ( a ) provisional as shown in the table above, in 2005, remittances increased to us $ 1, 968 mn, indicating a 22. 6 % growth compared to 2004. the remittance flows have further increased to us $ 1, 726. 7 mn by end september 2006 and a 20 % increase is expected by the year end. remit

in may 2010. tensions spilled over into market segments other than government bonds. not surprisingly, the credit risk of the eu banking system mounted to levels higher than those observed after the collapse of lehman brothers ( see chart 4 ). by the same token, the probability of a simultaneous default of two or more large and complex euro area banking groups, as measured by the indicator of systemic risk reported in chart 5, rose sharply on 7 may. money market volatility also surged ( see chart 6 ) : implied volatility on three - month interest rate futures went up in early may for contracts expiring six months ( second contract ) and 12 months ( fourth contract ) ahead. regarding the foreign exchange markets, between mid - february and 7 may, the euro depreciated by 7 % against the dollar, from usd 1. 36 to 1. 27 per euro. shorting the euro became the proxy speculative position for selling greek and other “ peripheral ” debt. in early may the net short speculative ( non - commercial ) position against the euro reached a record 114, 000 contracts, equivalent to about €14 billion ( see chart 7 ). the turmoil had an impact on equity markets as well : between mid - february and 7 may, the euro area stock market declined by more than 7 % ( and by 15. 5 % from april 15 to may 7! ). even more worrisome, in may equity indices decreased worldwide ( see chart 8 ). in may and june the average pair - wise realised correlation between s & p500 stocks went up more than it did after the lehman bankruptcy. loosely speaking, this indicates that concerns about macroeconomic developments had inhibited investors from differentiating between different stocks, and panic was mounting ( see chart 9 ). stock markets also became more volatile, as reflected by the increase in the implied volatility of the eurostoxx50 and s & p500 indices, albeit at levels lower than those observed towards the end of 2008 ( see chart 10 ). the longterm implied volatility of the us stock market also surged ( see chart 11 ). finally, indicators of investors ’ sentiment, as measured by the difference between equity put and call options implied volatilities, went up in may ( see charts 12, 13, and 14 ). all in all, on the eve of the first week - end of may the global financial system was on the verge of a meltdown similar to, if not worse than, the