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The resurgence of COVID is a serious threat to the expected global economic recovery and the revival of Sri Lanka’s flagging economy.

Global resurgence of COVID

The resurgence of COVID in several regions of the world and an imminent third wave of COVID in Sri Lanka are severe setbacks to the expected global economic recovery and the revival of the Sri Lankan economy.

The resurgence of the COVID-19 at a turning point in its containment with the use of the vaccine is a severe setback to global economic recovery.

The renewed surge in COVID-19 infections is threatening to de-rail global economic growth. If the fresh outbreaks of new mutations of the virus spread and if key sources of demand for Sri Lanka’s exports falter, the economy would be in a perilous state.

Availability of vaccines

The uneven availably and access to vaccines would  further accentuate the divide between the rich and poor countries and between the rich and poor within countries. Even more horrendous is the exponential growth in unemployment, poverty and hunger.

Last week

More people were diagnosed with COVID-19 last week than in any other since the pandemic began. Last week the World Health Organisation (WHO) warned that new infections are increasing everywhere except Europe, led by rocketing numbers in India, Argentina, Turkey and Brazil.

Global economic rebound

The resurgence is casting a shadow over a previously expected global economic rebound due to the failure to control the virus or get vaccines distributed evenly. There are increasing risks owing to new mutations, first in developing countries and then in developed nations that had been containing the pandemic by vaccines.

The IMF’s upward revision of global economic growth of March this year would have to be revised downwards as global trade and travel would be adversely affected during the upcoming months owing to the resurgence of COVID in many countries, economic lockdowns and global travel restrictions.

Third wave

This third wave is a more severe and virulent mutation that could increase fatalities and cripple economies more drastically than in 2020. Lockdowns in the UK, European countries, Saudi Arabia and North America will slow down these economies. Lockdowns to contain the spread of the virus would reduce production and weaken supply chains.

Worst impact

The most detrimental impact would be the reduction of employment and incomes and increased inequality and poverty. All these are serious setbacks to our export dependent economic recovery that is in turn much dependent on global economic development.

Expectations of recovery

The hopes and expectations of an improvement in the external finances lay in an improved balance of payments this year.

A balance of payments surplus of over US$ two billion was expected mainly from a growth in exports, revival of tourism later in the year, increased earnings from ICT services and a continued inflow of workers’ remittances, despite a higher trade deficit than that of last year owing to increased import expenditure.

Trade deficit

As import expenditure is bound to increase this year, the trade deficit was expected to be contained by a growth in exports. Now this is an unrealistic expectation, If there is a serious setback to the global economic recovery.

The export growth that was expected at the beginning of the year, is unlikely due to decreased demand for our manufactured exports. The prospect of a revival of tourism later this year is also diminishing. This is a serious blow to the balance of payments that expected about US$ 1.5 billion from tourism.

Furthermore, the continued set back to tourism means the deprivation of  employment and incomes of a large number of those dependent on tourism, directly and indirectly.

Containment of COVID

Most important for the country’s economic recovery is the containment of COVID within the country as there are definite signs of a resurgence after the relaxation of restrictions during the new year period and increased foreign travel.

Disruption

Lockdowns in certain regions of the country and curfew and travel restrictions would disrupt production of especially industries. Industrialists are currently devising ways and means of minimising attendance of their workforce and disruption of supplies.

Key economic activities that would be retarded are merchandise exports, ICT services and earnings from tourism. All of which would make a dent in the balance of payments.

Exports

The signs of export growth in the first two months of the year that was expected to gain momentum later in the year are now in doubt. Among the exports expected to benefit were the country’s pre-COVID main export-apparel. Rubber goods and ceramics exports too were expected to increase. Meanwhile COVID induced exports of surgical gloves, other gloves and personal protective garments too were expected to continue.

Furthermore, with the commencement of international travel, the exports of heavy duty tyres that were adversely affected by lesser air and heavy goods transport were expected to recover.

These expectations led to a higher export earnings of US$ 15 billion than the Export Development Board (EDB) target of US$ 12 billion. If the global conditions for trade deteriorate then even the EDB target may not be achieved.

Spread of COVID, a severe threat

Increased domestic travel and the intermingling of people without adequate safety precautions during the festive season spread the virus, as expected by the health authorities. Furthermore, international travel has introduced new strains of the virus. These are severe threats to the economy. Consequently, once again lockdown in factories and travel restrictions within the country could reduce the country’s production and export capacity.

Summing up

The resurgence and spread of COVID around the world is a serious threat to the expected global economic recovery. Sri Lankan exports that were expected to surpass the pre-COVID earnings could slump. On the other hand, import expenditure will increase owing to increased international prices of fuel, fertiliser and other raw materials.

The curtailment of these imports would aggravate difficulties in production of essential food, increase the cost of essential consumer items, especially food and cost of production of export industries. This would in turn widen the trade deficit.

The expectation of a revival of tourism later this year is unlikely owing to the spread of COVID and restrictions of international travel.

Conclusion

The resurgence of COVID is likely to impact adversely on the economy in many ways. The third wave of the epidemic in the country would curtail economic activity and aggravate the concerns in export manufactures.

Therefore, containing the spread of the virus is of utmost importance to reduce its economic impacts. Of particular significance is the need to restrict international visitors to the country. Any haste to relax restrictions to boost economic production could be counter-productive.