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The resurgence of COVID-19 and its rapid spread in most regions of the country is a serious threat to the economy. The much expected economic revival in 2021 may face serious difficulties owing to production activities being hampered by the spreading of COVID-19 in many parts of the island.

Fall in production

Most economic activities are likely to be hampered by the resurgence of COVID-19. Agricultural production, manufactures and services are likely to face severe setbacks in the coming months owing to lockdowns, travel restrictions and non-availability of fertiliser and raw materials. Reduced employment would depress incomes and increase poverty. Widespread food insecurity is most likely.

Global revival

Meanwhile, global economic revival too may be delayed owing to a continued spread of COVID-19 in some countries. The expected ‘V’ shaped global recovery is unlikely though some countries like the United States appear to be containing the pandemic. International travel restrictions could also hamper the expected revival of tourism later this year.

Economic downturn

Unlike in 2020 when our economic growth was mainly affected by the global economic downturn, this year’s economic performance will be hampered mostly by the dislocation of both agricultural and industrial production in the country due to the resurgence of COVID. This resurgence was due to the haste to normalise the country and adoption of inappropriate policies.

All blame for the economic disruption cannot be on COVID-19. Apart from the impact of COVID-19, inappropriate economic policies could bring about severe difficulties to increasing production of both agriculture and manufactures.

Tourism

Tourism and related services could be severely restricted by COVID in originating countries, restrictions in international travel and the COVID situation in the country. On the other hand, the relaxation in restrictions to enhance tourism has been a reason for the spread of COVID in the country.

Policies

Appropriate economic policies are crucial to mitigate the emerging problems. Conversely, ill-advised and inappropriate policies could aggravate the economic downturn and hardships of people. The ban on chemical fertiliser is a glaring example of this.

Output of rice and other food crops as well as tea and rubber output is likely to fall drastically later this year and in 2022. This implies higher food imports and lower agricultural exports. It will result in drastic reduction in farmer incomes, higher food prices and widespread food insecurity among the poor.

Decision making

Has the Government heeded either technical advice of agronomists, agricultural economists or farmers before this drastic decision was taken? There is a spate of scientifically based articles on the inadvisability of banning chemical fertiliser immediately in the media and among scientists.

Relaxing restrictions

There is a broad consensus that the cardinal error was the relaxation of preventive measures during the Sinhala and Tamil New Year that resulted in the spread of the dangerous virus. Relaxation of restrictions for some tourists could have contributed to the spread of the virus and the introduction of new mutations of it.

The impatience to get the economy moving was no doubt a primary reason for relaxing restrictions. There was also considerable social irresponsibility in the manner in which people acted that contributed much to its spread. There was no exemplary behaviour with the higher echelons of society and political leadership.

Precondition for economic revival

The country’s economic performance would be determined largely by the measure of success in containing COVID-19. The eradication of COVID-19 is a pre-condition for economic revival.

The World Health Organisation (WHO) had warned all countries that haste to get economies to function may endanger the containment of COVID-19. They had repeatedly advised that containment of COVID-19 should precede the reopening of economic activities as the spread of COVID-19 would paralyse economic activity.

Sri Lanka’s medical services had also warned about the possibility of a third wave if restrictions were lifted during the festive Sinhala and Tamil New Year. These predictions have materialised and the third wave of COVID is extensive and beyond the capacity of the medical facilities to cope with it.

Vulnerability

The country’s economic vulnerability could be compounded by inappropriate policy responses that would aggravate the global and local economic shocks. For instance, the current shortages in fertilisers that farmers are experiencing could reduce rice, vegetable and food production.

The ban on chemical fertilisers could result in a severe drop in food availability requiring large food imports at high prices. Similarly, loss of tea and rubber production would affect export earnings.

Manufacturing

There are indications from time to time of manufacturing industries having difficulties in obtaining raw materials. This, together with travel difficulties and lockdowns could hamper industrial production as well.

In such a grave context inappropriate economic policies could heighten difficulties and hamper production.

Unrealistic expectation

In this backdrop, it is unrealistic to expect the realisation of the Central Bank’s optimistic economic scenario expressed in the Annual Report of the Central Bank for 2020 that the “Sri Lankan economy is expected to rebound strongly in 2021 and sustain the high growth momentum over the medium term, buoyed by growth oriented policy support.”

This expectation of economic rebound at the beginning of this year was based on the prospect of a global economic recovery at that time that would enhance the country’s exports and revive global travel and tourism that is not likely this year with the increasing spread of the virus in several regions of the world and in Sri Lanka. In fact the situation in the country and in neighbouring India could be more potent than the global situation and retard the economy.

Conclusion

The containment of COVID in the country is a precondition for economic production and income generation. While foremost efforts must be given to this, the economic difficulties should not be compounded by inappropriate policies.