COVID-19 outbreak shocks Sri Lanka’s economy
The unending new coronavirus (COVID-19) outbreak will exert a significant impact on Sri Lanka’s economy through various sectors including a sharp drop in domestic demand, lower tourism, business, travel, exports, trade, foreign remittances and industry etc, official sources said.
Temperature testing equipment at the entrance to the Shangri-La Hotel, Colombo where visitors are checked round-the-clock, as a precaution against COVID-19. Pic by Amila Gamage
The magnitude of the economic losses will depend on how the outbreak evolves, which remains highly uncertain, a senior Treasury official said adding that the economic impact is now being analysed considering various scenarios.
The range of aspects and statistics considered in the provisional estimates suggested an economic impact (financial loss) of around 0.1 or 0.2 of gross domestic product (GDP) in the range of US$9.1 billion to $18.2 billion.
Sri Lanka’s economic links with China could be directly affected as significant volumes of consumer goods, intermediate goods and investment goods are imported from China.
Around half of total number of local firms has been impacted and their sales declined ranging between 20-40 per cent, 40-60 per cent and over 60 per cent, official sources said.
Telecom and energy-based manufacturing companies have not been affected given the anticipated cost savings amid falling commodity and oil prices.
With massive tax cuts announced during late November 2019 and January 2020, the Government has taken steps to increase disposable income of the consumer in order to stimulate consumer growth.
If the government is successful in containing the spread of COVID-19, a recovery is possible in credit and consumption to materialise earnings expectations of the overall economic players in the near to medium term.
The likely slowdown of the global economy and disruptions to the supply chain could affect Sri Lanka’s merchandise and service exports as well as related logistics, Central Bank announced.
The drop in exports due to the new coronavirus could be as much as 25 per cent in the next quarter, resulting in a reduction of $750 million in merchandise exports in the second quarter of 2020, Export Development Board (EDB) sources said.
The export industry has informed that imported raw materials are sufficient only for two months.
Local manufacturers have begun to shut down their factories due to the lack of imported raw materials and buyers’ demand, a senior EDB official told the Business Times.
Workers’ remittances to Sri Lanka are expected to affect badly by COVID-19, which is spreading alarmingly in at least two of the countries Italy and South Korea and West Asia from where Sri Lanka gets a substantial amount of remittance revenue, he said.
According to provisional Treasury estimates, worker remittances to Sri Lanka will fall to $4 billion from $6.7 billion in 2019.
The Treasury has predicted that Sri Lanka could lose 30 per cent of its tourism revenues, or about $1.5 billion, this year due to decline in tourist arrivals following the COVID-19 crisis.
The local apparel sector’s revenue loss would be around $ 10 million.
The estimated loss in tea export revenue will be around $520 million; he said adding that tea prices plunged about 40 per cent as Iran and China have stopped importing the commodity.