SriLankan losses at Rs.30.9 bn in Apr. 2020- Jan. 2021:CB
View(s):
CB Governor Prof. W.D. Lakshman presenting the report to Prime Minister Mahinda Rajapaksa.
SriLankan Airlines (SLA) incurred an operating loss of Rs. 30.9 billion in the period April 2020 to January 2021 due to the travel restrictions associated with the COVID-19 pandemic.
This is in comparison to the Rs. 13.9 billion loss recorded during the period April 2019 to January 2020, which also included the impact of the Easter Sunday attacks, the Central Bank said in its 2020 annual report released last week.
Meanwhile the Sri Lankan economy, alongside the global economic downturn induced by the pandemic, contracted by 3.6 per cent in real terms in 2020, recording the deepest recession since independence.
Mobility restrictions and other containment measures imposed locally and internationally, with a view to preventing the spread of COVID-19, hampered real economic activity across all sectors, the Central Bank said.
Following are excerpts
from the report:
The sharp contraction observed in industry activities during the year was driven by the significant slowdown in construction and manufacturing activities. Services activities also registered a notable contraction due to the pandemic driven deceleration in transportation, other personal services, and accommodation, food and beverage services. The agriculture sector, too, registered a contraction during the year as the impact of the pandemic outweighed the positive effects of timely policy support and favourable weather conditions.
The contraction of investment expenditure exceeded the reduction in national savings, resulting in a decline in the savings-investment differential in 2020. Meanwhile, the unemployment rate rose above 5 per cent for the first time since 2009, with a decline in the labour force participation rate, in the wake of uncertainties surrounding the pandemic. Reflecting the combined effect of the contraction in Gross Domestic Product (GDP) at current market prices and the depreciation of the Sri Lankan rupee against the US dollar, GDP per capita declined to US$3,682 in 2020 from $3,852 in the previous year.
The pandemic also caused a decline in the overall size of the economy to $80.7 billion in 2020 from $84 billion in 2019. In spite of the overall contraction, the economy began to show strong signs of recovery during the second half of 2020, responding to the pro-growth policy initiatives across the fiscal and monetary policy fronts.
Supported by timely policy measures undertaken by the Government and the Central Bank, the external sector battled strong headwinds in 2020. The slump in merchandise exports due to the mobility restrictions and lockdown measures was swiftly overcome, demonstrating the resilience of Sri Lankan exporters.
Accordingly, export earnings rebounded within a relatively short span of time to reach pre-pandemic levels. Measures to curtail non-essential imports, together with the significantly low global petroleum prices, helped reduce the import expenditure in 2020, resulting in a notable improvement in the trade deficit.
Port city
The Colombo Port City, the first of its kind in South Asia, is expected to bring numerous socioeconomic benefits to the country, conditional on the country’s ability to attract strategic investments by offering an investor friendly atmosphere expeditiously. The Colombo Port City is being developed with a modern business atmosphere that can compete with other popular investment hubs, such as Dubai, Singapore and Hong Kong, to attract investors, entrepreneurs, innovators, companies, and financial institutions through a well-structured and competitive legal, tax and regulatory mechanism.
Paddy
Paddy production in 2020 increased to an all-time high level, supported by favourable weather conditions and conducive policies of the Government. Paddy production, which recorded a bumper harvest in 2019, further increased by 11.5 per cent to 5.1 million metric tons in 2020. The production in the 2019/2020 Maha season, which accounted for around 62 per cent of total annual production, increased by 4 per cent, while paddy output in the 2020 Yala season recorded an increase of 26.6 per cent. Government intervention in the form of guaranteed paddy purchasing price and the provision of free fertiliser for paddy cultivation contributed to the significant improvement in production in 2020.
Tea
The production of tea registered a notable decline of 7.1 per cent in 2020 due to adverse weather conditions and labour supply disruptions due to COVID-19 containment measures.
Rubber
Rubber production recorded an increase of 4.6 per cent in 2020 largely due to attractive market prices and favourable weather conditions that prevailed in the second half of the year.
Coconut
The supply of coconut and coconut products experienced a contraction in 2020. Coconut production showed a notable decline of 9.5 per cent in 2020, as a result of the lag effect of insufficient rainfall received by major coconut growing areas in 2019. The contraction in nut production and supply side disturbances that emerged amidst the COVID-19 pandemic adversely impacted coconut related industries.
A severe shortage of coconuts for consumption and industrial usage due to low domestic production resulted in prices of coconut and coconut based products escalating in 2020. Accordingly, average retail price of coconut increased significantly by 45.8 per cent to Rs. 73.82 per nut compared to the preceding year.
The increase in market price of fresh coconuts pushed up the cost of coconut based products. Accordingly, the average price of coconut oil increased significantly by 31.9 per cent to Rs. 343.18 per 750 ml bottle in 2020, while the average local market price of desiccated coconut also increased to Rs. 447.56 per kilogramme in 2020 from Rs. 251.03 per kilogramme in 2019. Further, a 36.5 per cent decline in desiccated coconut exports was observed while export price of desiccated coconut increased by 37.3 per cent during the year.
IT
Information and Communication Telecommunication, and IT programming consultancy and related services grew by 14.1 per cent in 2020 compared to the growth of 16.2 per cent recorded in 2019, benefitting from the increased demand for telecommunication and IT services during the year under social distancing-related measures.
Accordingly, telecommunication activities sustained a high growth of 15.4 per cent in 2020 on top of the growth of 17.2 per cent recorded in 2019, as telecommunications infrastructure played a pivotal role, particularly under the working-from-home and learning-from-home arrangements adopted by most workplaces and educational institutions amidst the COVID-19 pandemic-related restrictions on mobility and physical distancing requirements.
FDI
Foreign Direct Investments (FDIs) to BOI companies, including loans, decreased by 42.2 per cent to $687 million in 2020, compared to $1,188.7 million recorded in 2019. The contraction in FDIs was witnessed across all the sectors. In the meantime, the total value of projects approved by the BOI in 2020 is estimated at Rs. 406.3 billion depicting a contraction of 91.4 per cent compared to 2019.
Labour force
The labour force, which is the economically active population, declined to 8.467 million in 2020 from 8.592 million recorded in 2019. Accordingly, the economically inactive population increased to 8.273 million in 2020 from 7.832 million in 2019. The persons who lost employment suspending their availability to work and active job search steered this significant increase in inactivity. The lack of interest towards working was possibly due to the containment measures that restricted movement, discouragements with regard to lack of job openings and health risks, which prevailed amidst the spread of COVID-19 pandemic.
In line with the decline in labour force and increase in inactive population, the labour force participation rate (LFPR), which is the ratio of the labour force to the household population, decreased to 50.6 per cent in 2020 from 52.3 per cent in 2019.
Trade
China surpassed India as the major trading partner of Sri Lanka in 2020, followed by the US, and these three countries contributed around 40 per cent of the total trade (both exports and imports) of Sri Lanka. Total trade with China, India and US, which was at $12.6 billion in 2019, declined to $10.5 billion during the period under consideration driven by the impact of the pandemic.
Workers’ remittances
Workers’ remittances increased to record a 5.8 per cent growth in 2020 to $7.1 billion compared to a decline of 4.3 per cent in 2019. This growth may be attributed to the increased stay period of migrant workers as a result of the closure of most international borders, increased use of formal channels, and a possible increase in the amount remitted by migrant workers to families in Sri Lanka to manage the pandemic driven hardships.