Columns

It is increasingly clear that controlling the rapidly spreading COVID virus is vital for the nation’s economic survival and a precondition to resolving the multiplicity of problems and reviving the economy.

Priority

The containment of COVID from spreading is the national priority. It is far more important than keeping the economy functioning. In fact, people must live and work to revive the economy. However difficult, it is essential to redouble efforts to contain the virus than risk it’s spreading.

Resurgence

The premature relaxing of restrictions for the Sinhala and Tamil New Year, irresponsible social behaviour, inadequate precautions and a haste to activate the economy has led to the current exponential spread of the virus.

Essential strategy

A three pronged strategy of preventive measures, social behaviour and vaccination of a large number of citizens is the key to containing the pandemic. While achieving zero infection is unlikely for several years, its containment to manageable proportions too may take some time as adequate amount of vaccines are not available.

Economic revival

It is also important to not hastily commence economic activities that could spread the pandemic. Especially important is the banning of foreign tourists and closing the borders.

Many countries that have been successful in eliminating the virus, such as New Zealand and Australia adopted this successful strategy. In contrast, Sri Lanka promoted tourists from highly infected countries!

Resurgence

The recent rapid spread of COVID makes the control of the virus far more important than keeping the economy moving. The series of curfews and lockdowns are an admission that the containment of the COVID from spreading is the priority and far more important than keeping the economy functioning.

The post-New Year resurgence of the COVID is a serious threat to the economy. The economy is likely to slide further this year and move into a crisis situation by the end of the year and in 2022. The economic revival that was expected in 2021 by the Government and international agencies is unlikely owing to production activities being hampered by the spreading of COVID in all parts of the island, lockdowns, emergencies and transport difficulties.

Economy next

In as much as the nation needs food and basic needs to survive, it must survive to produce them. Keeping the country’s production going, while imposing curfews and lockdowns, is a daunting task in the midst of a raging epidemic.

Responding to economic and epidemiological problems in hasty, ill thought out, inappropriate and impractical policies have compounded the perilous state of the economy and livelihoods of the people.

In tandem

Although the government is attempting to keep the wheels of industry moving in tandem with the containment of COVID-19, economic activities are being seriously hampered by COVID and the measures to contain its spread. Containing COVID-19 is undoubtedly the priority and precondition to getting the economy functioning.

Global demand

The expected economic constraints in 2020 were the depressed demand for the country’s exports. The economy, and especially exports, were expected to be affected adversely by the global economic downturn. However, the resilience, adaptability and diversification into new emerging demands enabled the export dip to be minimal. This thrust may continue this year.

In the first quarter of 2021 exports of nearly US$ one billion was at last year’s level and in fact at the pre-COVID first three months of 2020. However, this year’s export performance may be hampered not by the lack of export demand but by the dislocation of production in the country from May.

Maintaining factory production at required levels of output amidst the spreading virus, travel restrictions and lockdowns is a challenging task. Nevertheless, export industries are finding ways and means of maintaining production under these constraints.

Exports

The Export Development Board (EDB) had an export target of US$ 12 billion for 2021. This was a realistic expectation at the beginning of the year when it appeared that the pandemic was abating. Furthermore, there were signs that the country’s pre-COVID exports of garments, leather and rubber goods and ceramic were picking up and that at the same time, the demand for personal protective equipment (PPE) were continuing.

Consequently, it was quite reasonable to expect exports to exceed the EDB’s target and reach around US$ 15 billion. This was especially so if later in the year, exports of solid tyres, electrical equipment and boats revived.

The threat to achieving the export target is not the external environment that is improving, but the spread of COVID in the country that is constraining production.

The Export Development Board (EDB) and the Board of Investment (BOI) are making valiant efforts to ensure the production of exportable goods. Their success would be dependent on containment of the virus in the community, vaccination of workers and the safety measures adopted in factories.

Much of the country’s success in ensuring exports would now depend mostly on ensuring the supply of exportable goods rather than international demand. This also implies the need to ensure essential imported raw materials. There is increasing evidence of shortages of raw materials hampering manufactures.

Agriculture

Agricultural production was the least affected in the last two waves of COVID due to its nature and mode of production.  A bumper harvest in this year’s Yala could have eased the cost of living and accessibility to food, on the one hand, and on the other hand, improved, livelihoods of the large rural community. Instead, the unavailability of fertiliser has crippled production of paddy and food crops and threatens the livelihoods of farmers.

Fertiliser

The decision to ban chemical fertiliser will aggravate the food supply situation, poverty and food security of a large proportion of the population. Rice production in 2021/22 is likely to halve. Other food crops and tea too have been adversely affected by shortage of fertiliser and agro-chemicals.

Economic policies

Adoption of inappropriate economic policies could bring about severe difficulties to increasing production of both agriculture and industry. The unavailability of raw materials for manufacturing and fertiliser for food crop and export agriculture are severe current threats to the economy.

Decreased food production would necessitate imports of costly food that are several-fold the value of fertilizer imports. Alternately, there would be severe food shortages and widespread food insecurity.

Tea

The unavailability of fertiliser, weedicides and pesticides for tea and rubber would diminish their production and exports and widen the country’s trade deficit.

These ill-advised import control policies are likely to aggravate the country’s external finances. Only foreign borrowing or assistance can redeem the country when this happens.

Concluding reflection

The containment of the exponential resurgence of COVID is the national priority. The widespread vaccination of people is the only viable solution to containing the virus to manageable proportions to get the economy functioning. We must hope for appropriate policy responses that would mitigate the spread of the virus and find ways and means of increasing production in the country. Inappropriate policies could aggravate the perilous state of the economy.