Sri Lanka’s economic outlook after the Covid 19 pandemic
The SARS-CoV 2 Virus which was initially identified in 2019 led to a significant spread across borders from Wuhan in China to Europe and Asia.
As the outbreak continued for the past one and half years, governments in each country resorted to various measures in protecting their nations from the pandemic.
Measures such as curfews, lockdowns and travel bans had an enormous impact on people’s lives and also on global trade at large. Therefore, the question arises whether COVID 19 accelerates or deaccelerates globalisation. Because, this pandemic is raising barriers to the free movement of goods, people, and capital that underpin globalisation. Countries that are heavily dependent on exports, imports and labor migration including Sri Lanka are facing major economic downturns as global supply chains have become massively disrupted. As opposed to this argument, many countries have also resorted to nationalistic policies and stronger restrictions on aspects such as migration.
This shift seems to be a backlash against globalisation which repositions the mercantilists’ argument of high government intervention on international trade and investment.
Estimating the impact of COVID 19 on a nation’s economy is a challenging task given that it affects sectors around the world. However, there is a significant economic decline in domestic sectors such as agriculture, construction, transportation, travel and tourism.
Furthermore, there are major deteriorations globally in terms of export demand, foreign direct investments, and foreign migration. Sri Lankan tourism industry in particular, will be significantly affected by the decline in tourism earnings which was already disturbed by the Easter Sunday attack.
The textile and garment industry which is the highest contributor in Sri Lankan export earnings will have severe damages due to a decline in global demand. Even though the above sectors are having direct impacts, there are other sectors such as SMEs that have had a substantial indirect impact as well. The culmination of these direct and indirect impacts is further evident from Colombo Stock Exchange through ASPI which endured major fluctuations during the time.
The pandemic will have a negative long-term impact on companies with poor cash flows due to their inability to meet the working capital requirements and operating liquidity to withstand the businesses. With the development of novel strains of the virus in different parts of the world, the government will face an uphill task in implementing economic recovery policies.
Sri Lanka made impressive progress in tackling poverty throughout the years but with the unparalleled economic downturn due to the pandemic, most people in the private sector and the informal sector lost their livelihoods and their earnings were reduced which would ultimately increase poverty levels. According to IMF (2020), The COVID-19 pandemic resulted in a truly global economic crisis following a dramatic fall in global production and foreign direct investment which is much worse than the 2008/09 financial crisis.
Unprecedented challenges from COVID-19 crisis requires unprecedented measures. Therefore, the government of Sri Lanka took several measures in providing relief through emergency support allowances for low-income families, providing relief through extensions in utility and lease payments. However, this has opened new avenues to the government to expand the fiscal operations by increasing the current expenditures, which would ultimately worsen the overwhelming debt level of the economy.
Importantly, the CBSL also introduced key concessions on eligible parties to support businesses in difficult times. Such monetary stimulus would allay the adverse outcomes of the above fiscal operations on investments, to a greater extent. While these measures may provide temporary relief, well-planned long term strategies are required to overcome the debilitating effects of the pandemic.
Sri Lanka’s growth was noteworthy amidst 30 years of civil war and we rose from the ashes with the Easter Sunday attack. Hence, with proper economic measures, the economy is expected to rebound in months to come with the ‘new normal’.
By Poornima Gamage
Assistant Lecturer
Department of International Business
Faculty of Management and Finance
University of Colombo