Editorial

The otherwise sluggish economy was further retarded by last year’s drop in tourism earnings by 18 per cent — from USD 4.3 billion to USD 3.5 billion after the Easter Sunday bombings. On top of that there was a drop in remittances from Sri Lankan workers overseas by USD 300 million now standing at USD 5 billion to what was once, not too long ago, USD 7 billion.

COVID-19 has attacked each and every major sector of the economy bringing in foreign exchange: tea and garment exports earnings; lower remittances from the three countries where Sri Lankan workers are employed (with South Korea and Italy badly affected and anticipated low global oil prices retarding West Asian economies for some time) and the dislocation of the tourism industry.

How the country can ‘roll with the punches’ is what is at stake. It clearly is not going to be easy.

What we are seeing is a sweeping and radical move to stem the tide with the beginning of import restrictions and hints about import substitutions the likes of which might lead to what has not been witnessed since the liberalisation of the economy in 1977 — and a return to the bad old days of not that long ago.

The Central Bank has been arm-twisted to announce the unpopular moves. A misquote by the Cabinet spokesman this week that the first wave of a “temporary suspension” of all luxury items from motor cars to deodorants was to be followed by an import clamp down on everything under the sun other than pharmaceuticals and oil sent shivers down everyone. The Government later cleared the air about the blanket ban on imports but has so far ducked giving reasons why the first restriction came about. The reasons are clear as clear can be. The Government is broke.

Early signs emerged when the Prime Minister asked the Government of India for a moratorium on loans taken from that country. A request to the Government of China was expected to follow when the President went to Beijing. The outbreak of COVID-19 put paid to the visit but China gave a loan of USD 500 million that was to be announced during the visit anyway, only adding to the debt burden but helping the country tide over difficult times. COVID-19 has come as a deft distraction to sneak the draconian import restrictions and other measures that will inevitably see a return to the pre-1977 era in Sri Lanka.

The GMOA (Government Medical Officers Association) is clearly is in the driving seat of the Government’s drive to contain COVID-19. If it is advocating a complete crackdown on all activities as it has pointed out in a 10-point statement, it has seemingly misinterpreted an international think-tank’s ‘Hammer and Dance’ theory. That theory calls for tough even two-month-long ‘social distancing’ measures (Hammer) and then gradually withdraw those measures (Dance) when issues subside. Their argument is to “buy time” till the spread of the virus is contained and vaccines are found. Being in the frontline of this crisis, the GMOA members and those in the hospitals face the brunt of this unseen enemy and their insistence on a countrywide curfew is understandable, but only to a point.

Can the Government afford to ignore the economy in the process? Will the tough imposition of a curfew lead to an ‘operation successful, patient dead’ situation if the economy totally collapses. This is a dilemma for the Government.

Already a permit system is in place giving the Police the authority to issue a limited number of curfew passes for workers in the plantations and industry. Then they raid those workplaces to see if the numbers have been exceeded. Pharmacies that are already licensed have to get a permit to stay open.

In all countries hit by COVID-19, and successful in ‘flattening the curve’ of the spread of the virus, pharmacies and grocery stores were kept open and citizens allowed to go out only for that purpose of making purchases. In Singapore, Japan and South Korea the situation is controlled arrested by efficient testing, tracing, isolating and quarantine plus a ban on internal travel. Maybe Sri Lanka is not epidemiologically up to this task yet and hence the tough curfew.

If the Police are trying to justify the curfew trotting out statistics of curfew violators, they also need to say how many are on joyrides as opposed to how many are actually in search of food or medicine – or up to crime, a frightening spectre in times of shortages.

Broke the Government maybe, but it cannot absolve itself of having to protect the poor and an estimated two million people who may lose their jobs unless it intervenes. It has already announced a financial stimulus for the Samurdhi (poverty alleviation) recipients. The mechanism identifying and distributing to an additional 1.5 million families as stated in a recent circular is an enormous task during a curfew.

Because of weak aggregate demand, the Government may be able to mop up large savings from the financial institutions and borrow the balance from the Central Bank to distribute the money in the hands of those who need it most. Inflationary effects of printing money are expected to be moderate in an environment of poor aggregate demand and adequate supply.

Putting the country on a ‘war footing’ is not the same as a top heavy state control of the economy. That would only ignore long and complex supply chains for distributing commodities. It will not work. Even in the ongoing food distribution, the State sector marketing from the farm to consumer caters only to a segment of the population. Panic through anxiety will see another rush to stock home larders defeating the social distancing requirement.

While officially it is estimated that growth will drop by 1 percent due to COVID-19, many fear that for the first time since 2001, Sri Lanka will see zero or a negative growth rate in 2020.

This is a natural disaster which is a national disaster. The 1978 cyclone, the 2004 tsunami, the droughts, floods and landslides, even the ‘war’ will pale into insignificance. The safe reopening of the economy as fast as possible is a prerequisite to economic recovery.